BioCardia, Inc. - Quarter Report: 2020 September (Form 10-Q)

FORWARD-LOOKING INFORMATION

This Quarterly Report on Form 10-Q, or report, contains forward-looking statements within the meaning of the U.S. federal securities laws that involve risks and uncertainties. Certain statements contained in this report are not purely historical including, without limitation, statements regarding our expectations, beliefs, intentions, anticipations, commitments or strategies regarding the future that are forward-looking. These statements include those discussed in Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, including “Critical Accounting Policies and Estimates,” “Results of Operations,” “Liquidity and Capital Resources,” and “Future Funding Requirements,” and elsewhere in this report.

In this report, the words “may,” “could,” “would,” “might,” “will,” “should,” “plan,” “ forecast,” “anticipate,” “believe,” “expect,” “intend,” “estimate,” “predict,” “potential,” “continue,” “future,” “moving toward” or the negative of these terms or other similar expressions also identify forward-looking statements. Our actual results could differ materially from those forward-looking statements contained in this report as a result of a number of risk factors including, but not limited to, those listed in our Annual Report on Form 10-K for the year ended December 31, 2019, and elsewhere in this report. You should carefully consider these risks, in addition to the other information in this report and in our other filings with the SEC. All forward-looking statements and reasons why results may differ included in this report are made as of the date of this report, and we undertake no obligation to update any such forward-looking statement or reason why such results might differ after the date of this Quarterly Report on Form 10-Q, except as required by law.

PART I. FINANCIAL INFORMATION

ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

BIOCARDIA, INC.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share amounts)

See accompanying notes to condensed consolidated financial statements.

BIOCARDIA, INC.

Condensed Consolidated Statements of Operations

(In thousands, except share and per share amounts)

(unaudited)

See accompanying notes to condensed consolidated financial statements.

BIOCARDIA, INC.

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

(In thousands, except share amounts)

(unaudited)

See accompanying notes to condensed consolidated financial statements.

BIOCARDIA, INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(unaudited) 

See accompanying notes to condensed consolidated financial statements.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                                                   

The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Any and all statements contained in this Annual Report that are not statements of historical fact may be deemed forward-looking statements. Terms such as “may,” “might,” “would,” “should,” “could,” “project,” “estimate,” “pro-forma,” “predict,” “potential,” “strategy,” “anticipate,” “attempt,” “develop,” “plan,” “help,” “believe,” “continue,” “intend,” “expect,” “future” and terms of similar import (including the negative of any of the foregoing) may be intended to identify forward-looking statements. However, not all forward-looking statements may contain one or more of these identifying terms. Forward-looking statements in this Quarterly Report may include, without limitation, statements regarding (i) the plans and objectives of management for future operations, including plans or objectives relating to the development of our cell therapy systems and our clinical trials, (ii) a projection of income (including income/loss), earnings (including earnings/loss) per share, capital expenditures, dividends, capital structure or other financial items, (iii) our ability to raise additional capital, (iv) our future financial performance, including any such statement contained in a discussion and analysis of financial condition by management or in the results of operations included pursuant to the rules and regulations of the SEC and (vi) the assumptions underlying or relating to any statement described in points (i) – (iv) above. Our actual results may differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and elsewhere in this Quarterly Report on Form 10-Q, those listed in our Annual Report on Form 10-K for the year ended December 31, 2019 and those listed in our Quarterly Reports on Form 10-Q for the three months ended March 31, 2020 and for the three and six months ended June 30, 2020. Historical results are not necessarily indicative of future results. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Quarterly Report on Form 10-Q to conform these statements to actual results or to changes in our expectations.

Overview

We are a clinical-stage regenerative medicine company developing novel autologous and allogenic cell therapies for cardiovascular and pulmonary diseases with large unmet medical needs. We are committed to applying our expertise in the fields of autologous and allogenic cell-based therapies to improve the lives of patients with cardiovascular and pulmonary conditions. Our CardiAMP cell therapy platform provides an autologous bone marrow derived cell therapy (using a patient’s own cells) for the treatment of two clinical indications: heart failure that develops after a heart attack (BCDA-01) and chronic myocardial ischemia (BCDA-02).  Our allogenic cell therapy, derived from donor cells and provided “off the shelf”, is also being advanced for two indications, heart failure (BCDA-03) and for the pulmonary indication of acute respiratory distress that has developed from COVID-19 (BCDA-04).

Our Helix™ Biotherapeutic Delivery System or “Helix” delivers therapeutics into the heart muscle with a helical needle from within the heart.  It enables local delivery of cell and gene-based therapies, including CardiAMP and CardiALLO cell therapies to treat cardiac indications.  The Helix catheter is CE marked in Europe and is under investigational use in the United States as part of our cardiovascular cell therapy development programs. We selectively partner with firms developing other cell, gene and protein therapies utilizing the Helix.  These partnered programs provide additional data, intellectual property rights, and opportunities to participate in the development of combination products for the treatment of heart diseases. Helix is in use or has potential to be used to treat many cardiac diseases including heart failure with reduced ejection fraction, heart failure with preserved ejection fraction, obstructive hypertrophic cardiomyopathy, myocardial infarction, chronic myocardial ischemia, and cardiac conduction disorders. 

Our Morph catheter is designed to enable physicians to navigate through tortuous anatomy, customize the shape of the catheter to the patient’s anatomy and their clinical needs during the procedure, and to have stellar backup support once positioned.  Morph catheters enable our cell therapy procedures and have been commercially available to treat more than ten thousand patients.  A number of Morph guides and sheaths are approved for commercial sale in the United States including the Morph AVANCE™ steerable introducer and the Morph DNA guide. Certain Morph catheter systems are approved in Europe with CE Mark. We anticipate broader commercial availability of the AVANCE steerable introducer in the future and utilization of Morph DNA in our cardiovascular cell therapy clinical programs.

To date, we have devoted substantially all our resources to research and development efforts relating to our therapeutic candidates and biotherapeutic delivery systems, including conducting clinical trials, developing manufacturing and sales capabilities, in-licensing related intellectual property, providing general and administrative support for these operations and protecting our intellectual property. We have also generated modest revenues from sales of our approved products. We have funded our operations primarily through the sales of equity and convertible debt securities, and certain government and private grants.

We have incurred net losses in each year since our inception. Our net losses were approximately $3.8 million and $12.0 million for the three and nine months ended September 30, 2020, respectively. Our net losses were approximately $3.8 million and $11.2 million for the three and nine months ended September 30, 2019, respectively. As of September 30, 2020, we had an accumulated deficit of approximately $113.1 million. Substantially all our net losses have resulted from costs incurred in connection with our research and development programs, clinical trials, intellectual property matters, building our manufacturing and sales capabilities, and from general and administrative costs associated with our operations. As discussed in more detail under “Liquidity and Capital Resources”, there is substantial doubt about our ability to continue as a going concern within one year after the date this Quarterly Report on Form 10-Q is filed with the SEC, and we plan to raise additional capital, potentially including debt and equity arrangements, to finance our future operations. There can be no assurances as to the availability of capital or the terms on which capital will be available, if at all.

CardiAMP Cell Therapy for Heart Failure and Chronic Myocardial Ischemia

The Company’s lead platform, CardiAMP cell therapy, is an autologous cell therapy being advanced for two indications in pivotal clinical trials: heart failure and chronic myocardial ischemia.

The CardiAMP Heart Failure Trial is a Phase III, multi-center, randomized, double-blinded, sham-controlled study of up to 260 patients at 40 centers nationwide, which includes a 10-patient roll-in cohort. The Phase III pivotal trial is designed to provide the primary support for the safety and efficacy of the CardiAMP Cell Therapy System for this indication (BCDA-01). The trial is active at 23 clinical sites and 81 patients have been enrolled to date. The independent Data Safety Monitoring Board (DSMB) completed a prespecified data review in March 2020, which included the safety follow-up results available for these patients. From this review, the DSMB indicated there were no safety concerns with the study results and recommended that the trial continue as planned. We anticipate another prespecified DSMB interim readout from the trial on December 15, 2020 on all patients enrolled at that time point, which will include a futility analysis on the 60 patients that will have reached one- year follow-up. This event is anticipated to be the first randomized data set including the primary efficacy endpoint reviewed by the DSMB.

The CardiAMP Chronic Myocardial Ischemia Trial is a Phase III, multi-center, randomized, double-blinded, controlled study of up to 343 patients at up to 40 clinical sites. The Phase III pivotal trial is designed to provide the primary support for the safety and efficacy of the CardiAMP Cell Therapy System for this indication (BCDA-02). This therapeutic approach uses many of the same novel aspects as the CardiAMP Heart Failure Trial and is expected to leverage our experience and investment in the heart failure trial. The trial has been activated and we are working towards initial patient enrollment in the fourth quarter of 2020. 

We are continuing to assess the impact of COVID-19 on the enrollment in the CardiAMP trials. Some of our clinical centers stopped performing elective procedures and advised us that they would not be performing elective procedures until restrictions on elective procedures are lifted.  Many centers also delayed patient follow-up visits out of concern for patient exposure to COVID-19.  In alignment with recent FDA guidance on clinical trials, “FDA Guidance on Conduct of Clinical Trials of Medical Products during COVID-19 Pandemic Guidance for Industry, Investigators, and Institutional Review Boards”, we have taken steps to address unavoidable protocol deviations due to COVID-19 illness and/or COVID-19 control measures. Clinical sites remain engaged and most are resuming elective procedures, including enrollment activities in our trial.

The Department of Health & Human Services Centers for Medicare & Medicaid Services, or CMS, has designated that both CardiAMP pivotal trials qualify for Medicare national coverage. Covered costs include patient screening, the CardiAMP Cell Therapy System and procedure, and clinical follow-up at one and two years after the procedure.  Private insurance plans covering 50 million insured Americans follow this CMS reimbursement policy and are similarly anticipated to cover these costs.  This coverage significantly reduces our cost of conducting these pivotal trials.  

ALLOGENIC Cell Therapy for Cardiac and Pulmonary Disease

Our second therapeutic platform is our investigational culture expanded bone marrow derived allogenic, neurokinin 1 receptor positive selected mesenchymal stem cells (NK1R+ MSC). This “off the shelf” mesenchymal cell therapy is being advanced for cardiac and pulmonary disease.

We are actively working to secure FDA acceptance of an Investigational New Drug (“IND”) application for a Phase I/II trial for our allogenic cells for the treatment of ischemic systolic heart failure (BCDA-03). We are working to receive acceptance of the IND in the fourth quarter of 2020, a critical step to beginning the trial.

The Company also intends to submit an IND for the use of its allogenic cell therapy for Acute Respiratory Distress Syndrome (ARDS) caused by COVID-19. Based on preliminary clinical reports on COVID-19, respiratory failure complicated by ARDs is the leading cause of death for COVID-19 patients. ARDS is a type of respiratory failure characterized by rapid onset of widespread inflammation in the lungs. We are working towards FDA acceptance of the IND in the fourth quarter of 2020.

Financial Overview

Revenue

We currently have a portfolio of enabling and delivery products, from which we have generated modest revenue. Net product revenues include commercial sales of our Morph vascular access system in the US and EU and collaboration agreement revenues include revenue from partnering agreements with corporate and academic institutions. Under these partnering agreements, we provide our Helix biotherapeutic delivery system and customer training and support for use in preclinical and clinical studies.

Cost of Goods Sold

Cost of goods sold includes the costs of raw materials and components, manufacturing personnel and facility costs and other indirect and overhead costs associated with manufacturing our commercial enabling and delivery products, which generate net product revenue.

Research and Development Expenses

Our research and development expenses consist primarily of:

We expense all research and development costs in the periods in which they are incurred. Costs for certain development activities are recognized based on an evaluation of the progress of completion of specific tasks using information and data provided to us by our vendors and clinical sites. Nonrefundable advance payments for goods or services to be received in future periods for use in research and development activities are deferred and capitalized. The capitalized amounts are then expensed as the related goods are delivered and the services are received.

We plan to increase our research and development expenses for the foreseeable future as we continue the pivotal CardiAMP Heart Failure Trial, advance the pivotal CardiAMP Chronic Myocardial Ischemia Trial, further develop our autologous and allogenic cell therapy candidates. We typically use our employee and infrastructure resources across multiple research and development programs, and accordingly, we have not historically allocated resources specifically to our individual programs.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist primarily of salaries and related costs for employees in executive, finance and administration, sales, corporate development and administrative support functions, including share-based compensation expenses and benefits. Other selling, general and administrative expenses include sales commissions, rent, accounting and legal services, obtaining and maintaining patents, the cost of consultants, occupancy costs, insurance premiums and information systems costs.

Other Income (Expense)

Other income and expense consist primarily of interest income we earn on our cash, cash equivalents and investments, and interest charges we incurred in periods during 2019 when we had convertible debt outstanding. 

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with generally accepted accounting principles in the United States. The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities. We evaluate these estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various judgements 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 clear from other sources. Actual results may differ from these estimates under different assumptions or conditions. 

We define our critical accounting policies as those that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations as well as the specific manner in which we apply those principles. Our critical accounting policies are described in Item 2 in our Annual Report on Form 10-K for the year ended December 31, 2019, filed April 9, 2020.

Results of Operations

Comparison of Three and Nine Months Ended September 30, 2020 and 2019

The following table summarizes our results of operations for the three and nine months ended September 30, 2020 and 2019 (in thousands): 

 Revenue.    Revenue decreased to $34,000 in the third quarter of 2020 as compared to $194,000 in the third quarter of 2019, due primarily to lower revenue generated from partnering activities during the respective quarters. Revenue decreased to $99,000 in the nine months ended September 30, 2020 as compared to $495,000 in the nine months ended September 30, 2019 primarily due to the reduced volumes of commercial catheter sales as a part of the planned transition to the new AVANCE and Morph DNA product families coupled with lower revenue generating partnering activities during the period.  Net product revenue is expected to be nominal during the fourth quarter of 2020, with growth in 2021, subject to customer demand, production resource availability for the new product families, the timing of FDA clearance for market release of different models and sizes and the resumption of medical procedures by our health care provider customers that have been adversely impacted by the response to the COVID-19 pandemic.

Cost of Goods Sold.    Cost of goods sold decreased $160,000 in the third quarter of 2020 as compared to the third quarter of 2019 and decreased $317,000 in the nine months ended September 30, 2020 compared to September 30, 2019, due primarily to the decrease in net product sales volumes coupled with the increase in raw material inventory reserves in 2019 related to transitioning to production of the new AVANCE™ product family. We expect cost of goods sold to be nominal in the fourth quarter of 2020, with growth in 2021, depending on the timing and demand for the new product family introductions.

Research and Development Expenses.   Research and development expenses increased by approximately $467,000 during the third quarter of 2020 as compared to the third quarter of 2019 and by $1,092,000 in the nine months ended September 30, 2020 as compared to September 30, 2019, primarily due to expenses incurred in the execution of the pivotal CardiAMP Heart Failure and CardiAMP CMI trials and development of our allogenic therapies and other therapeutic programs, which include fees paid to consultants, contract research organizations, additional personnel costs and increased stock compensation expense including the January 29, 2020 option repricing. We expect research and development expenses to increase moderately year over year in 2020 as we advance our trials and further develop BioCardia’s autologous and allogenic cell therapies.

Selling, General and Administrative Expenses.   Selling, general and administrative expenses for the third quarter of 2020 increased marginally by approximately $18,000, or 1.3% as compared to the third quarter of 2019. Selling, general and administrative expenses in the nine months ended September 30, 2020 increased by $182,000, or 4.0%, as compared to the nine months ended September 30, 2019, primarily due to increased stock compensation, including the January 29, 2020 repricing, coupled with increased insurance premiums and professional service fees, partially offset by the expenses incurred in 2019 associated with the reverse stock split and up listing to the Nasdaq Capital Market. We expect selling, general and administrative expenses to decrease modestly in the fourth quarter of 2020 and be relatively consistent year over year as compared to 2019.

Liquidity and Capital Resources

We have incurred net losses each year since our inception and as of September 30, 2020, we had an accumulated deficit of approximately $113.1 million. We anticipate that we will continue to incur net losses for the next several years.

We have funded our operations principally through the sales of equity and convertible debt and equity securities as well as the cash acquired through our reverse merger transaction that was completed on October 24, 2016, $3.8 million raised from the sale of unregistered securities on December 24, 2018, the $625,000 raised from convertible notes that were issued in July 2019 and that converted in August 2019, the $9.27 million in net proceeds raised from the sale of common stock and warrants in August and September 2019, the $506,000 raised from a promissory note in May 2020 and the $10.3 million in net proceeds raised from the sale of common stock in June 2020. As of September 30, 2020, we had cash and cash equivalents of approximately $7.4 million. 

The following table shows a summary of our cash flows for the periods indicated (in thousands): 

Cash Flows from Operating Activities. The increase in overall spending for operating activities of $2.8 million through the third quarter of 2020 compared to the third quarter of 2019 related primarily to increases in payments to third parties involved in our clinical trial and increased professional fees and insurance premiums. We expect spending to increase modestly as we advance the CardiAMP Heart Failure Trial and further develop our therapeutic programs.

Cash Flows from Investing Activities. Net cash used in investing activities of $32,000 through the third quarter of 2020 consisted primarily of purchases of office and computer equipment. Net cash used in investing activities of $144,000 through the third quarter of 2019 consisted primarily of purchases of lab equipment and clean room environmental systems.

Cash Flows from Financing Activities. Net cash provided by financing activities of $10.8 million during the nine months ended September 30, 2020 consisted of $11.5 million in gross proceeds from the sale of common stock in June 2020 less issuance costs of $1.2 million and $506,000 proceeds from the Note (as defined below). Net cash provided by financing activities of $9.9 million during the nine months ended September 30, 2019 consisted of $10.5 million in gross proceeds from the sale of common stock and warrants in August and September 2019, less issuance costs of $1.2 million and $625,000 in proceeds from the convertible notes received in July 2019 that converted in August 2019.

PPP Loan

On May 1, 2020, BioCardia Lifesciences, Inc., our wholly owned subsidiary, entered into a promissory note (the “Note”) with Silicon Valley Bank (the “Lender”) evidencing an unsecured loan in the aggregate principal amount of $506,413 pursuant to the Paycheck Protection Program (the “PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) administered by the U.S. Small Business Administration. All the funds under the Note were disbursed to us on May 1, 2020.

In accordance with the requirements of the CARES Act, we intend to use the proceeds from the Note in accordance with the requirements of the PPP to cover certain qualified expenses, including payroll costs, rent and utility costs. Interest accrues on the Note at the rate of 1.00% per annum. We may apply for forgiveness of amount due under the Note, in an amount equal to the sum of qualified expenses under the PPP, which include payroll costs, rent obligations, and covered utility payments incurred during the eight weeks following disbursement under the Note. On June 5, 2020, the Paycheck Protection Flexibility Act extended the period for qualifying expenses from eight weeks to an optional twenty-four-week period. We intend to use the entire proceeds under the Note for such qualifying expenses.

Subject to any forgiveness under the PPP, the Note matures two years following the date of issuance of the Note and includes a period for the first six months during which time required payments of interest and principal are deferred. Beginning on the seventh month following the date of the Note, the Borrower is required to make 18 monthly payments of principal and interest. The Note may be prepaid at any time prior to maturity with no prepayment penalties. On October 7, 2020, the Company applied for forgiveness of the note payable with the Lender for $506,413. That application for forgiveness was approved in its entirety on November 7, 2020.

2020 Public Offering of Common Stock

In May 2020, the Company submitted a Form S-1 Registration Statement (S-1) to the Securities and Exchange Commission (SEC), which was subsequently amended. On June 17, 2020, the Company entered into an underwriting agreement with A.G.P./Alliance Global Partners, as representative of the several underwriters named therein, relating to a firm commitment underwritten public offering pursuant to the S-1, of 4,762,000 shares of common stock, par value of $0.001 per share. The offering price to the public was $2.10 per share. The underwriters were granted a 45-day option to purchase up to 714,190 additional shares of common stock to cover over-allotments. Such option was exercised in full on June 18, 2020. The closing of the offering occurred on June 19, 2020. After deducting underwriting discounts and commissions and estimated offering expenses payable by the Company, BioCardia realized net proceeds of approximately $10.3 million.

Future Funding Requirements

To date, we have generated modest revenue from sales of our approved products. We do not know when, or if, we will generate any revenue from our development stage biotherapeutic programs. We do not expect to generate any revenue from sales of our cell therapy candidates unless and until we obtain regulatory approval. At the same time, we expect our expenses to increase in connection with our ongoing development activities, particularly as we continue the research, development and clinical trials of, and seek regulatory approval for, our therapeutic candidates. In addition, subject to obtaining regulatory approval for any of our therapeutic candidates and potential companion diagnostics, we expect to incur significant commercialization expenses for product sales, marketing, manufacturing and distribution. We anticipate that we will need additional funding in connection with our continuing operations.

Based upon our current operating plan, we believe that the cash and cash equivalents of $7.4 million as of September 30, 2020 is not sufficient to fund our operations beyond the second quarter of 2021. In order to continue to further the development of our lead therapeutic candidates beyond the second quarter of 2021, we will need to raise additional capital. We plan to raise additional capital, potentially including debt and equity arrangements, to finance our future operations. We have based our estimates on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect. Because of the numerous risks and uncertainties associated with the development and commercialization of our therapeutic candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures necessary to complete the development of our therapeutic candidates.

Our future capital requirements will depend on many factors, including:

Until such time that we can generate meaningful revenue from the sales of approved therapies and products, if ever, we expect to finance our operating activities through public or private equity or debt financings, government or other third-party funding, marketing and distribution arrangements, and other collaborations, strategic alliances and licensing arrangements or a combination of these approaches. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of our common stock holders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stock holders. Debt financing, if available, may involve agreements that include conversion discounts or covenants limiting or restricting our ability to take specific actions, such as incurring debt, making capital expenditures or declaring dividends. If we raise additional funds through government or other third-party funding, marketing and distribution arrangements or other collaborations, or strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs, products or therapeutic candidates or to grant licenses on terms that may not be favorable to us.

Our condensed consolidated financial statements as of and for the three and nine months ended September 30, 2020 have been prepared on the basis that we will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. Due to the factors described above, there is substantial doubt about our ability to continue as a going concern within one year after the date these financial statements are issued. Our ability to continue as a going concern will depend in a large part, on our ability to raise additional capital. BioCardia’s ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and the continuing disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic. If adequate funds are not available, we may be required to reduce operating expenses, delay or reduce the scope of our product development programs, obtain funds through arrangements with others that may require us to relinquish rights to certain of our technologies or products that we would otherwise seek to develop or commercialize ourselves, or cease operations. While we believe we have a viable strategy to raise additional funds, there can be no assurances that we will be able to obtain additional capital on acceptable terms and in the amounts necessary to fully fund our operating needs.

The financial statements do not include any adjustments that might result from the outcome of this uncertainty. If we are unable to continue as a going concern, we may be forced to liquidate assets. In such a scenario, the values received for assets in liquidation or dissolution could be significantly lower than the values reflected in our financial statements.

Off-Balance Sheet Arrangements

During the periods presented, we did not have, nor do we currently have, any off-balance sheet arrangements as defined under the rules of the Securities and Exchange Commission.

Recent Accounting Pronouncements

See Note 2 of our notes to condensed consolidated financial statements for information regarding recent accounting pronouncements that are of significance or potential significance to us.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in our market risks during the three months ended September 30, 2020.

Our exposure to market risk is currently limited to our cash and cash equivalents, all of which have maturities of less than three months. The goals of our investment policy are preservation of capital, maintenance of liquidity needs, and fiduciary control of cash and investments. We also seek to maximize income from our investments without assuming significant risk or departing from our investment policy. We currently do not hedge interest rate exposure. Because of the short-term nature of our cash equivalents, we do not believe that an increase in market rates would have a material negative impact on the value of our portfolio.

Interest Rate Risk

As of September 30, 2020, based on current interest rates and total borrowings outstanding, a hypothetical 100 basis point increase or decrease in interest rates would have an immaterial pre-tax impact on our results of operations.

Foreign Currency Exchange Risks

We are a U.S. entity and our functional currency is the U.S. dollar. The vast majority of our revenues were derived from sales in the United States. We have business transactions in foreign currencies; however, we believe we do not have significant exposure to risk from changes in foreign currency exchange rates at this time. We do not currently engage in hedging or similar transactions to reduce our foreign currency risks. We will continue to monitor and evaluate our internal processes relating to foreign currency exchange, including the potential use of hedging strategies.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

In connection with the preparation of this Quarterly Report on Form 10-Q, as of September 30, 2020, an evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of September 30, 2020, our disclosure controls and procedures were, in design and operation, not effective at a reasonable assurance level as a result of the material weakness described below.

Status of Material Weakness

We identified the following material weakness in our internal control over financial reporting during the year ended December 31, 2019:

Management has implemented measures designed to improve our internal control over financial reporting and remediate the material weakness, including the following:

Management believes that the measures implemented above will provide an appropriate remediation of the material weakness. However, the material weakness will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. The Company expects that the remediation of this material weakness will be completed prior to December 31, 2020.

We cannot assure you that the measures we are taking will be sufficient to remediate this material weakness or to avoid potential future material weaknesses. If our efforts are not successful, or other material weaknesses or control deficiencies occur in the future, we may be unable to report our financial results accurately on a timely basis, which could cause our reported financial results to be materially misstated and result in the loss of investor confidence and cause the market price of our common stock to decline.

Changes in Internal Control over Financial Reporting

Other than the material weakness described in this Item 4, there were no changes to our internal control over financial reporting identified in connection with the evaluation required by rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the three months ended September 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We have three legal proceedings (the “Litigation”) currently pending in Federal Court in San Francisco.  All three proceedings relate to matters we raised in a letter to Ms. Surbhi Sarna, nVision Medical Corporation (“nVision”), a company Ms. Sarna founded, and Boston Scientific Corporation, which acquired nVision, based on BioCardia’s discovery in January 2019 that Ms. Sarna had assigned to nVision a patent and patent applications she had filed while a BioCardia employee.  BioCardia made various claims, including that the patent and patent application rightfully belonged to BioCardia pursuant to Ms. Sarna’s invention assignment agreement, and that the proceeds from the sale of nVision to Boston Scientific rightfully belonged to BioCardia because they were the direct result of Ms. Sarna’s breach of her obligation to assign to BioCardia the patent and patent applications and the use of misappropriated BioCardia trade secrets.

On September 6, 2019, Boston Scientific Corporation, Boston Scientific Scimed Inc, and Fortis Advisors LLC (the “Boston Scientific Parties”) filed the first legal proceeding, a complaint captioned Boston Scientific Corporation, et al. v. BioCardia, Inc.,  Case no. 3:19-05645-VC (the “BSC Action”), seeking declarations that the claims made in BioCardia’s correspondence were without basis.  On October 31, 2019, BioCardia filed a counterclaim against the Boston Scientific Parties and Ms. Sarna for breach of contract, misappropriation of trade secrets and correction of inventorship on the patent assigned to nVision by Ms. Sarna. BioCardia sought imposition of constructive trusts both on the patent naming Ms. Sarna as an inventor and the proceeds received from the sale of nVision to Boston Scientific, as well as damages, including unjust enrichment damages measured by the proceeds received from the sale of nVision to Boston Scientific.

On April 9, 2020, we entered into a Litigation Funding Agreement with BSLF, L.L.C., an entity owned and controlled by Andrew Blank, a member of our board of directors, to fund the Litigation.

On April 23, 2020, BioCardia filed a complaint (the second proceeding) captioned BioCardia, Inc. v. nVision Medical Corporation, Case no. 3:20-02829-VC (the “nVision Action”) arising out of the same transaction as BioCardia’s counterclaims in the BSC Action.  On April 29, 2020 Judge Vincent Chhabria, the Judge who is presiding over the BSC Action, determined at BioCardia’s request that the nVision Action is “related to” the BSC Action and accordingly reassigned the nVision Action to himself.  On May 22, 2020, BioCardia filed an amended complaint in the nVision Action in which it added as defendants the institutional investors (i.e., the VC’s) who funded nVision.

On July 16, 2020 and again on July 23, 2020, combined hearings were held on various motions to dismiss filed by the counter defendants in the BSC Action and the defendants in the nVision Action.  As a result of those hearings, BioCardia was given leave to file Second Amended Counterclaims in the BSC Action and a Second Amended Complaint in the nVision Action.  BioCardia did so on August 20, 2020.

The counter defendants in the BSC Action and the defendants in the nVision Action filed a total of eight motions on September 24, 2020 against BioCardia seeking dismissal of both Actions.  BioCardia filed oppositions on October 26, 2020, and replies are due on November 12, 2020.  A hearing on all eight motions is scheduled for December 3, 2020.

One of the motions to dismiss raised the possibility that BioCardia’s wholly-owned subsidiary, BioCardia Lifesciences, Inc. (itself formerly named BioCardia, Inc.), actually owns the counterclaims asserted in the BSC Action and the claims asserted in the nVision Action.  As a result, on October 23, 2020, BioCardia moved that BioCardia Lifesciences, Inc. be added as an additional counterclaimant in the BSC Action and as an additional plaintiff in the nVision Action.  A hearing on those motions is set for December 3, 2020, at the same time as the hearing on the eight motions filed by opposing parties.  Although BioCardia believes both motions should be granted, in case they are denied BioCardia filed a third proceeding captioned BioCardia Lifesciences, Inc. v. Surbhi Sarna, et al., No. 4:20-cv-07510-KAW (the “BioCardia Lifesciences Action”) asserting the same claims against the same parties who are adverse to BioCardia in the BSC Action and the nVision Action.  BioCardia has asked that the BioCardia Lifesciences Action be related to and therefore assigned to the same judge as in the BSC Action and the nVision Action. BioCardia has informed the Court that it will dismiss without prejudice the BioCardia Lifesciences Action if the motions to add BioCardia Lifesciences as an additional counterclaimant in the BSC Action and as an additional plaintiff in the nVision Action are granted.

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019, which could materially affect our business, financial condition, or future results. The risks described in this report, our Annual Report on Form 10-K for the year ended December 31, 2019, and our Quarterly Reports on Form 10-Q filed periodically with the SEC are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.  

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBIT INDEX

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.