(

)

Significant Accounting Policies

(a)

Basis of Presentation and Consolidation

These consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (U.S. GAAP) and include all adjustments necessary for the fair presentation of the Company's financial position for the periods presented. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All material intercompany accounts and transactions have been eliminated during the consolidation process.

(b)

Liquidity

The Company has incurred net losses and negative cash flows from operations since its inception and had an accumulated deficit of

$116.1

million as of

December 31, 2020.

Management expects operating losses and negative cash flows to continue through at least the next several years.

Cash and cash equivalents totaled

$21.4

million on

December 31, 2021,

which management believes is sufficient to fund the Company's planned expenditures and meet its obligations for at least

months following the filing of this Form

-K.

(c)

Use of Estimates

The preparation of the financial statements in accordance with U.S. GAAP requires Company management to make certain estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant items subject to such estimates and assumptions include the useful lives of property and equipment, right-of-use assets and related liabilities, allowances for doubtful accounts and sales returns; inventory valuation, derivative instruments, clinical accruals, share-based compensation and the assumptions used for revenue recognition. Management bases its estimates on historical experience and on various other market-specific and relevant assumptions that management believes to be reasonable under the circumstances. Actual results could differ materially from those estimates.

(d)

Cash Equivalents

The Company classifies all highly liquid investments with an original maturity date of

days or less at the date of purchase as cash equivalents. The Company maintains its cash and cash equivalents with reputable financial institutions.

(e)

Concentration of Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents. The Company maintains its cash at reputable U.S. financial institutions, which at times, exceed federally insured limits of

$250,000

per customer. On

December 31, 2020,

the Company's cash was held by

one

financial institution and the amount on deposit was in excess of FDIC insurance limits. The Company has

not

recognized any losses from credit risks on such accounts since inception. The Company believes it is

not

exposed to significant credit risk on cash and cash equivalents.

(f)

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are recorded at the invoiced amount and do

not

bear interest. The Company considers the creditworthiness of its customers but does

not

require collateral in advance of a sale. The Company evaluates collectability and maintains an allowance for doubtful accounts for estimated losses inherent in its accounts' receivable portfolio when necessary. The estimate is based on the Company's historical write-off experience, customer creditworthiness, facts, and circumstances specific to outstanding balances and payment terms. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The allowance for doubtful accounts was

$16,000

and

$2,000

as of

December 31, 2020

and

2019,

respectively.

(g)

Inventory

Inventory is stated at the lower of cost or net realizable value. Cost is determined using the average-cost method. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The Company analyzes its inventory levels quarterly and writes down inventory that has become obsolete or has a cost basis in excess of its expected net realizable value or inventory quantities in excess of expected requirements. Excess requirements are determined based on comparison of existing inventories to forecasted sales, with consideration given to inventory shelf life. Expired inventory is disposed of and the related costs are recognized in cost of goods sold.

(h)

Property and Equipment, Net

Property and equipment, net, are carried at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the related assets, as described in the table below. Maintenance and repairs are expensed as incurred. When assets are retired or otherwise disposed of, the cost and the related accumulated depreciation and amortization are removed from the accounts and any resulting gain or loss is reflected in the accompanying consolidated statements of operations.

Asset		Estimated useful lives (in years)
Computer equipment and software		3
Laboratory and manufacturing equipment		3
Furniture and fixtures		3
Leasehold improvements		5 years or lease term, if shorter

(i)

Right-of-Use Assets

Operating lease right-of-use asset and liabilities

- The Company will determine if an arrangement is a lease at the inception of the arrangement. All leases are assessed for classification as an operating lease or finance lease. The Company will recognize a lease liability and a right-of-use (ROU) asset for all leases, including operating leases, with a term greater than

months. ROU assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease.

The Company's lease liabilities are recognized at the applicable lease commencement date based on the present value of the lease payments required to be paid over the lease term. Variable lease payments are expensed as incurred and are

not

included the computation of the lease liability. The lease liability discount rate is generally the Company's incremental borrowing rate unless the lessor's rate implicit in the lease is readily determinable, in which case the lessor's implicit rate is used.

The Company's ROU assets are also recognized at the applicable lease commencement date. The ROU asset equals the carrying amount of the related lease liability, adjusted for any lease payments made prior to lease commencement and lease incentives provided by the lessor, if any. The Company reduces a ROU asset, and the periodic reduction is the difference between the straight-line total lease cost for the period (including reduction of initial direct costs) and the periodic accretion of the lease liability using the effective interest method.

The Company's lease terms

may

include options to extend or terminate the lease when it is reasonably certain that it will exercise any such options. Operating lease cost for lease payments is recognized on a straight-line basis over the lease term.

The Company's lease contracts often include lease and non-lease components. The Company has elected the practical expedient offered by the standard to

not

separate lease from non-lease components and accounts for them as a single lease component.

The Company has elected

not

to recognize ROU assets and lease liabilities for leases with a term of

twelve

months or less. Lease cost for short-term leases is recognized on a straight-line basis over the lease term.

(j)

Long-lived Assets

Impairment assessment of long-lived assets

- The carrying value of long-lived assets, including property and equipment and operating lease right-of-use assets, is reviewed for impairment whenever events or changes in circumstances indicate that the asset

may

not

be recoverable. An impairment loss is recognized when the total of estimated future undiscounted cash flows, expected to result from the use of the asset and its eventual disposition, are less than its carrying amount. Impairment, if any, would be assessed using discounted cash flows or other appropriate measures of fair value. Through

December

31,

2020,

there have been

such impairment losses.

(k)

Clinical Trial Accruals

As part of the process of preparing its consolidated financial statements, the Company is required to estimate its expenses resulting from its obligations under contracts with vendors and consultants and clinical site agreements in connection with conducting clinical trials. The financial terms of these contracts are subject to negotiation and

may

result in payment flows that do

not

match the periods over which materials or services are provided by the vendor under the contracts. The Company's objective is to reflect the clinical trial expenses in its consolidated financial statements by matching those expenses with the period in which the services and efforts are expended. The Company accounts for these expenses according to the progress of the trial as measured by patient progression and the timing of various aspects of the trial. The Company makes estimates of its accrued expenses as of each balance sheet date in its consolidated financial statements based on the facts and circumstances known at that time. Although, the Company does

not

expect its estimates to be materially different from amounts actually incurred, its understanding of the status and timing of services relative to the actual status and timing of services performed

may

vary and

may

result in reported amounts that differ from the actual amounts incurred.

(l)

Derivatives

The Company accounts for its derivative instruments as either assets or liabilities on the consolidated balance sheets and measures them at fair value. Derivatives are adjusted to fair value through other (expense) income, net, in the consolidated statements of operations. Derivatives settled in cash or with another financial instrument are reflected in the consolidated statements of cash flows in the same section as the related items.

(m)

Revenue Recognition

Net product revenue

– BioCardia currently has a portfolio of enabling and delivery products. Revenue from product sales is recognized generally upon shipment to the end customer, which is when control of the product is deemed to be transferred. Product sale transactions are evidenced by customer purchase orders, customer contracts, invoices and/or related shipping documents.

Collaboration agreement revenue

– Collaboration agreement revenue is income from agreements under partnering programs with corporate and academic institutions, wherein the Company provides biotherapeutic delivery systems and customer training and support for their use in clinical trials and studies. These programs provide additional clinical data, intellectual property rights and opportunities to participate in the development of combination products for the treatment of cardiac disease.

In determining the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements, the Company performs the following steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. As part of the accounting for these arrangements, the Company must develop assumptions that require judgment to determine the stand-alone selling price for each performance obligation identified in the contract.

The Company uses key assumptions to determine the stand-alone selling price, which

may

include forecasted revenues, development timelines, reimbursement rates for personnel costs, discount rates and probabilities of technical and regulatory success. This evaluation is subjective and requires the Company to make judgments about the promised goods and services and whether those goods and services are separable from other aspects of the contract. Further, determining the stand-alone selling price for performance obligations requires significant judgment, and when an observable price of a promised good or service is

not

readily available, the Company considers relevant assumptions to estimate the stand-alone selling price, including, as applicable, market conditions, development timelines, probabilities of technical and regulatory success, reimbursement rates for personnel costs, forecasted revenues, potential limitations to the selling price of the product and discount rates.

The Company applies judgment in determining whether a combined performance obligation is satisfied at a point in time or over time, and, if over time, concluding upon the appropriate method of measuring progress to be applied for purposes of recognizing revenue. The Company evaluates the measure of progress each reporting period and, as estimates related to the measure of progress change, related revenue recognition is adjusted accordingly. Changes in the Company's estimated measure of progress are accounted for prospectively as a change in accounting estimate. The Company recognizes collaboration revenue by measuring the progress toward complete satisfaction of the performance obligation using an input measure. The Company will re-evaluate the estimate of expected costs to satisfy the performance obligation each reporting period and make adjustments for any significant changes.

Amounts received prior to satisfying the revenue recognition criteria are recorded as deferred revenue in the Company's consolidated balance sheets. If the related performance obligation is expected to be satisfied within the next

twelve

months, it will be classified in current liabilities. The Company receives payments from its customers as established in each contract. Upfront payments and fees are recorded as deferred revenue upon receipt or when due and

may

require deferral of revenue recognition to a future period until the Company performs its obligations under these arrangements. The Company does

not

assess whether a contract with a customer has a significant financing component if the expectation at contract inception is such that the period between payment by the customer and the transfer of the promised goods or services to the customer will be

one

year or less. On

December 31, 2020,

deferred revenue totaled

$683,000,

consisting of future service revenues of approximately

$183,000

and future license fee revenues of

$500,000,

to be recognized at a point in time before

July 2021.

Multiple contracts with the same customer -

When

two

or more contracts are entered into with the same customer at or near the same time, the Company evaluates the contracts to determine whether the contracts should be accounted for as a single arrangement. Contracts are combined and accounted for as a single arrangement if

one

or more of the following criteria are met: (i) the contracts are negotiated as a package with a single commercial objective; (ii) the amount of consideration to be paid in

one

contract depends on the price or performance of the other contract; or (iii) the goods or services promised in the contracts (or some goods or services promised in each of the contracts) are a single performance obligation.

Contract costs -

The Company recognizes as an asset the incremental costs of obtaining a contract with a customer if the costs are expected to be recovered. The Company has elected a practical expedient wherein it recognizes the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that it otherwise would have recognized is

one

year or less. To date, the Company has

not

incurred any material incremental costs of obtaining a contract with a customer.

Contract modifications -

Contract modifications, defined as changes in the scope or price (or both) of a contract that are approved by the parties to the contract, such as a contract amendment, exist when the parties to a contract approve a modification that either creates new or changes existing enforceable rights and obligations of the parties to the contract. Depending on facts and circumstances, the Company accounts for a contract modification as

one

of the following: (i) a separate contract; (ii) a termination of the existing contract and a creation of a new contract; or (iii) a combination of the preceding treatments. A contract modification is accounted for as a separate contract if the scope of the contract increases because of the addition of promised goods or services that are distinct and the price of the contract increases by an amount of consideration that reflects the Company's stand-alone selling prices of the additional promised goods or services. When a contract modification is

not

considered a separate contract and the remaining goods or services are distinct from the goods or services transferred on or before the date of the contract modification, the Company accounts for the contract modification as a termination of the existing contract and a creation of a new contract. When a contract modification is

not

considered a separate contract and the remaining goods or services are

not

distinct, the Company accounts for the contract modification as an add-on to the existing contract and as an adjustment to revenue on a cumulative catch-up basis.

(n)

Shipping Costs

Costs incurred for the shipping of products to customers totaled approximately

and

$6,000

for the years ended

December 31, 2020

and

2019,

respectively, and are included in cost of goods sold in the accompanying consolidated statements of operations.

(o)

Product Warranties

The Company provides a standard warranty of serviceability on all its products for the duration of the product's shelf life, which is

two

years for Helix and Morph products currently. Estimated future warranty costs, if any, are accrued and charged to costs of goods sold in the period that the related revenue is recognized. Historical data and trends of product reliability and costs of repairing or replacing defective products are considered. Due to the low historical warranty claims experience, a general warranty accrual has

not

been required or recorded as of

December 31, 2020

and

2019.

(p)

Research and Development

The Company's research and development costs are expensed as incurred. Research and development expense include the costs of basic research activities as well as other research, engineering, and technical effort required to develop new products or services or make significant improvement to an existing product or manufacturing process. Research and development costs also include pre-approval regulatory and clinical trial expenses and support costs for collaborative partnering programs wherein the Company provides biotherapeutic delivery systems and customer training and support for their use in clinical trials and studies. The Company's research and development costs consist primarily of:

•

Salaries, benefits and other personnel-related expenses, including share-based compensation;

•

Fees paid for services provided by clinical research organizations, research institutions, consultants and other outside service providers;

•

Costs to acquire and manufacture materials used in research and development activities and clinical trials;

•

Laboratory consumables and supplies;

•

Facility-related expenses allocated to research and development activities;

•

Fees to collaborators to license technology; and

•

Depreciation expense for equipment used for research and development and clinical purposes.

(q)

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 the commercial enabling and delivery products, which generate net product revenue.

(r)

Share-Based Compensation

The Company measures and recognizes share-based compensation expense for equity awards to employees, directors and consultants based on fair value at the grant date. The Company uses the Black-Scholes-Merton (BSM) option pricing model to calculate fair value of its stock option grants. The compensation cost for restricted stock awards is based on the closing price of the Company's common stock on the date of grant. Share-based compensation expense recognized in the consolidated statements of operations is based on the period the services are performed and recognized as compensation expense on a straight-line basis over the requisite service period. The Company accounts for forfeitures as they occur.

Measurement of nonemployee awards - The measurement of equity-classified nonemployee awards is fixed at the grant date, and the Company

may

use the expected term to measure nonemployee options or elect to use the contractual term as the expected term, on an award-by-award basis. This differs from the guidance in Accounting Standards Codification (ASC)

505

that requires the use of the contractual term. Forfeitures of nonemployee awards will be recognized as they occur.

The BSM option pricing model requires the input of subjective assumptions, including the risk-free interest rate, the expected volatility in the value of the Company's common stock, and the expected term of the option. These estimates involve inherent uncertainties and the application of management's judgment. If factors change and different assumptions are used, the share-based compensation expense could be materially different in the future. These assumptions are estimated as follows:

Risk-free Interest Rate

The risk-free interest rate assumption is based on the

zero

-coupon U.S. Treasury instruments appropriate for the expected term of the stock option grants.

Expected Volatility

The Company has limited historical data of its own to utilize in determining expected volatility. As such the Company based the volatility assumption on a combined weighted average of the Company's own historical data and that of a selected peer group. The peer group was developed based on companies in the biotechnology and medical device industries whose shares are publicly traded.

Expected Term

The expected term represents the period of time that options are expected to be outstanding. As the Company does

not

have sufficient historical experience for determining the expected term of the stock options awards granted, the expected life is determined using the simplified method, which is an average of the contractual terms of the option and its ordinary vesting period.

(s)

Income Taxes

The Company accounts for income taxes based on the asset and liability method whereby deferred tax asset and liability account balances are determined based on differences between the financial reporting and tax bases of assets, liabilities, operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is provided when it is more likely than

not

that some portion or all of the deferred tax assets will

not

be realized.

In evaluating the ability to recover its deferred income tax assets, the Company considers all available positive and negative evidence, including its operating results, forecasts of future taxable income, and ongoing tax planning. In the event the Company was to determine that it would be able to realize its deferred tax assets in the future in excess of their net recorded amount, it would make an adjustment to the valuation allowance, which would reduce the provision for income taxes. Conversely, in the event that all or part of the net deferred tax assets are determined

not

to be realizable in the future, an adjustment to the valuation allowance would be charged to earnings in the period such determination is made.

The Company recognizes and measures benefits for uncertain tax positions using a

two

-step approach. The

first

step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than

not

that the tax position will be sustained upon audit, including resolution of any related appeals or litigation processes. For tax positions that are more likely than

not

to be sustained upon audit, the

second

step is to measure the tax benefit as the largest amount that is more than

50%

likely to be realized upon settlement. Significant judgment is required to evaluate uncertain tax positions. The Company evaluates its uncertain tax positions quarterly. Evaluations are based upon a number of factors, including the technical merits of the tax position, changes in facts or circumstances, changes in tax law, interactions with tax authorities during the course of audits, and effective settlement of audit issues. The Company's policy is to recognize interest and penalties related to unrecognized tax benefits as a component of income tax expense in the consolidated statements of operations and accrued interest and penalties within accrued liabilities in the consolidated balance sheets.

such interest and penalties have been recorded to date.

(t)

Fair Value of Financial Instruments

The Company applies fair value accounting for all financial assets and liabilities and nonfinancial assets and liabilities that are required to be recognized or disclosed at fair value in the consolidated financial statements. The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where observable prices or inputs are

not

available, valuation models are applied. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments complexity.

The Company's financial assets and liabilities consist principally of cash and cash equivalents, accounts receivable, and accounts payable. The fair value of the Company's cash equivalents is determined based on quoted prices in active markets for identical assets. Cash in the Company's operating bank accounts represents the difference between cash in the money market accounts and total cash and cash equivalents reported on the consolidated balance sheets. The recorded values of the Company's accounts receivable and accounts payable approximate their current fair values due to the relatively short-term nature of these accounts.

(u)

Net Loss per Share

Basic net loss per share is calculated by dividing the net loss by the weighted average number of shares of common stock outstanding. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of common share equivalents outstanding for the period determined using the treasury-stock method. Common stock equivalents are comprised of restricted stock units, warrants to purchase common stock and options outstanding under the stock option plans. For all periods presented, there is

difference in the number of shares used to calculate basic and diluted shares outstanding since the effects of potentially dilutive securities are antidilutive due to the net loss position.

(v)

Recent Accounting Pronouncements

October 2020,

the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)

2020

10—

Codification Improvements.

For public business entities, the amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after

December 15, 2020.

The amendments in this update do

not

change U.S. GAAP and, therefore, are

not

expected to result in a significant change in practice. Section A was removed from the final update of ASU

2020

10.

Section B of this update contains amendments that improve the consistency of the Codification by including all disclosure guidance in the appropriate Disclosure Section (Section

). Section C of this update contains Codification improvements that vary in nature. Management does

not

expect that adoption of this guidance will have a significant impact on the Company's financial statements.

March 2020,

the Securities and Exchange Commission (SEC) adopted amendments to change the definitions of

accelerated filer

and

large accelerated filer

to provide relief to smaller reporting companies. The amendments in SEC Release

No.

88365

to Rule

12b

of the Securities Exchange Act of

1934

provide that smaller reporting companies with up to

$700

million in public float and less than

$100

million in annual revenues in their most recently completed fiscal year are excluded from the definitions and as such are now designated as non-accelerated filers, in addition to all entities with less than

$75

million in public float. Management does

not

expect that adoption of this guidance will have a significant impact on the Company's financial statements.

December 2019,

the FASB issued ASU

2019

Income Taxes

(Topic

740

): Simplifying the Accounting for Income Taxes

, which removes certain exceptions for intra period allocations, recognizing deferred taxes for investments and calculating income taxes in interim periods. This ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. The guidance is effective for the Company for fiscal years, and interim periods within those fiscal years, beginning after

December 15, 2020,

with early adoption permitted. Management does

not

expect that adoption of this guidance will have a significant impact on the Company's financial statements.

June 2016,

the FASB issued ASU

No.

2016

13,

Financial Instruments - Credit Losses

(Topic

326

): Measurement of Credit Losses on Financial Instruments

, an amendment which modifies the measurement and recognition of credit losses for most financial assets and certain other instruments. The amendment updates the guidance for measuring and recording credit losses on financial assets measured at amortized cost by replacing the “incurred loss” model with an “expected loss” model. Accordingly, these financial assets will be presented at the net amount expected to be collected. The amendment also requires that credit losses related to available-for-sale debt securities be recorded as an allowance through net income rather than reducing the carrying amount under the current, other-than-temporary-impairment model. For smaller reporting companies the guidance is effective for fiscal years beginning after

December 15, 2022,

including interim periods within those fiscal years. Early adoption is permitted. Management does

not

expect that adoption of this guidance will have a significant impact on the Company's financial statements.

Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, and the American Institute of Certified Public Accountants did

not

or are

not

believed by management to have a material impact on the Company's financial statement presentation or disclosures.