Pathfinder Cell Therapy, Inc. - FORM 10-Q

Attached files

file	filename
EXCEL - IDEA: XBRL DOCUMENT - Pathfinder Cell Therapy, Inc.	Financial_Report.xls
EX-10.2 - PROMISSORY NOTES ISSUED BY REGISTRANT IN FAVOR OF VENTURA, INC. - Pathfinder Cell Therapy, Inc.	f10q0612ex10ii.htm
EX-31.1 - CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO EXCHANGE ACT RULE 13A-14(A), AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002. - Pathfinder Cell Therapy, Inc.	f10q0612ex31i_pathfinder.htm
EX-32.1 - CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO 18 U.S.C.1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002. - Pathfinder Cell Therapy, Inc.	f10q0612ex32i_pathfinder.htm
EX-31.2 - CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO EXCHANGE ACT RULE 13A-14(A), AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002. - Pathfinder Cell Therapy, Inc.	f10q0612ex31ii_pathfinder.htm
EX-32.2 - CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO 18 U.S.C.1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002. - Pathfinder Cell Therapy, Inc.	f10q0612ex32ii_pathfinder.htm
EX-10.1 - PROMISSORY NOTE ISSUED BY REGISTRANT IN FAVOR OF SKYE ASSET MANAGEMENT SA - Pathfinder Cell Therapy, Inc.	f10q0612ex10i.htm

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2012

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 0-20580

Pathfinder Cell Therapy, Inc.

(Exact name of registrant as specified in its charter)

Delaware	14-1745197
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

12 Bow Street, Cambridge,	02138
Massachusetts	(Zip Code)
(Address of principal executive offices)

(Former name, former address and former fiscal year, if changed since last report)

(617) 245-0289

(Issuer’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o

(Do not check if a smaller reporting company)

Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

Yes o No þ

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Common Stock, $.001 Par Value – 667,160,870 shares outstanding at June 30, 2012

Pathfinder Cell Therapy, Inc.

INDEX

		Page
Part I - FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Statements of Operations (unaudited) for the three-month and six-month periods ended June 30, 2012 and 2011 and for the period November 4, 2008 (Inception) through June 30, 2012	3

	Condensed Consolidated Balance Sheets as of June 30, 2012 (unaudited) and December 31, 2011	4

	Condensed Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the period November 4, 2008 (Inception) through June 30, 2012	5

	Condensed Consolidated Statements of Cash Flows (unaudited) for the three-month and six-month periods ended June 30, 2012 and 2011 and for the period November 4, 2008 (Inception) through June 30, 2012	6

	Notes to Condensed Consolidated Financial Statements (unaudited)	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17

Item 4.	Controls and Procedures	21

Part II - OTHER INFORMATION

Item 6.	Exhibits	22

	Signature	23

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PATHFINDER CELL THERAPY, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(unaudited)
													November 4, 2008 (Inception) Through June 30, 2012
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2012			2011			2012			2011
Revenue
Product sales	$	29		$	-		$	63		$	-		$	136
Revenue		29			-			63			-			136

Cost of goods sold		14			-			26			-			52

Gross profit		15			-			37			-			84

Operating expenses:
Research and development		399			440			687			783			3,532
General and administrative		223			156			496			298			2,704
Sales and marketing		6			-			13			-			43
Goodwill impairment		-			-						-			8,127
Operating expenses		628			596			1,196			1,081			14,406

Loss from operations before other income / (expense)		(613	)		(596	)		(1,159	)		(1,081	)		(14,322	)

Other income/(expense):
Interest (expense), net		(21	)		(20	)		(32	)		(31	)		(178	)
Provision for allowance of notes
receivable from SyntheMed, Inc.					(358	)					(651	)		-
Reversal of a liability														124
Other income/(expense)		(21	)		(378	)		(32	)		(682	)		(54	)

Loss before income tax benefit		(634	)		(974	)		(1,191	)		(1,763	)		(14,376	)
Income tax benefit		-			-			-			-			-

Net loss	$	(634	)	$	(974	)	$	(1,191	)	$	(1,763	)	$	(14,376	)

Net loss per common share-basic and diluted	$	(0.00	)	$	(0.00	)		(0.00	)		(0.00	)

Weighted average shares outstanding		667,161			457,999			667,161			457,999

See accompanying notes to the condensed consolidated financial statements

PATHFINDER CELL THERAPY, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)

		June 30,			December 31,
		2012			2011
ASSETS	(unaudited)

Current assets:
Cash		$	96		$	196
Accounts receivable			13			54
Inventory			57			51
Prepaid expenses			49			115
Total current assets			215			416

Intangible, net of accumulated amortization			218			227
Machinery, equipment and software, less accumulated depreciation						1
TOTAL		$	433		$	644

LIABILITIES AND CAPITAL DEFICIT

Current liabilities:
Accounts payable		$	84		$	243
Accrued expenses (including related party amount
of $284,000 and $336,000, respectively)			527			560
Current portion of long term payable			15			5
Insurance note payable			15			74
Note payable - Clubb Capital			244			244
Convertible notes payable			1,215			-
Total current liabilities			2,100			1,126

Long term payable - net of current portion			224			225

Commitments and other matters (Note K)

Capital deficit:
Preferred stock, $.01 par value; shares authorized - 5,000;
issued and outstanding - none
Common stock, $.001 par value; shares authorized - 1,000,000
issued and outstanding - 667,161 at June 30, 2012
and December 31, 2011			667			667
Additional paid-in capital			11,818			11,811
Accumulated deficit			(14,376	)		(13,185	)
Total capital deficit			(1,891	)		(707	)
TOTAL		$	433		$	644

See accompanying notes to the condensed consolidated financial statements

PATHFINDER CELL THERAPY, INC.

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY

NOVEMBER 4, 2008 (INCEPTION) THROUGH JUNE 30, 2012

(In thousands)

	Common Stock				Additional Paid-in Capital			Accumulated Loss
	Shares		Amount		Additional Paid-in Capital			Accumulated Loss			Total

Cash Contributions*		332,050		332		(332	)		-			0

Net Loss for Period		-		-		-			(32	)		(32	)

Balance, December 31, 2008		332,050		332		(332	)		(32	)		(32	)

Cash Contributions		-		-		430			-			430

Equity Issued for License*		125,950		126		(115	)		-			11

Net Loss		-		-		-			(547	)		(547	)

Balance, December 31, 2009		458,000		458		(17	)		(579	)		(138	)

Cash Contributions		-		-		307			-			307

Net Loss		-		-		-			(1,294	)		(1,294	)

Balance, December 31, 2010		458,000		458		290			(1,873	)		(1,125	)

Opening balance restatement for MGH license (see Note F)		-		-		-			(42	)		(42	)

Issuance of shares in merger transaction — September 2, 2011		114,500		114		5,906			-			6,020

Issuance of shares in a private placement and conversion of notes payable - September 2, 2011 at $0.05 per shares, net of placement costs of $575		89,662		90		3,819			-			3,909

Issuance of warrants to placement agent		-		-		237			-			237

Issuance of shares in settlement of Yissum liability		5,000		5		345			-			350

Shareholder contribution -3% merger fee due to MGH		-		-		687			-			687

Stock-based Compensation		-		-		527			-			527

Net Loss		-		-		-			(11,270	)		(11,270	)

Balance, December 31, 2011		667,162		667		11,811			(13,185	)		(707	)

Stock-based Compensation		-		-		7			-			7

Net Loss		-		-		-			(1,191	)		(1,191	)

Balance, June 30, 2012		667,162		667		11,818			(14,376	)		(1,891	)

* Share amounts, common stock and additional paid-in capital amounts were restated using the exchange ratio of the Merger to reflect the legal structure of legal acquirer (Note A)

See accompanying notes to the condensed consolidated financial statements

PATHFINDER CELL THERAPY, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
							November 4, 2008 (Inception) Through June 30, 2012
	Six Months ended June 30,
	Six Months ended June 30,
	2012			2011
Cash flows from operating activities:
Net loss	$	(1,191	)	$	(1,763	)	$	(14,376	)
Adjustments to reconcile net loss to
Net cash used in operating activities:
Amortization		9			6			60
Depreciation		1						1
Stock based compensation relating to options		7			-			534
Shareholder contribution -3% merger fee due to MGH		-			-			687
Goodwill impairment loss		-			-			8,127
Provision for allowance of notes receivable from SyntheMed, Inc.		-			651			-
Reversal of liability		-			-			(124	)

Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable		41			(3	)		88
Increase in interest receivable		-			(23	)		-
(Increase) decrease in inventory		(6	)		-			19
Decrease in prepaid expenses		90			14			134
(Decrease) increase in accounts payable		(159	)		230			81
Increase (decrease) in accrued expenses		(24	)		55			47
Net cash used in operating activities		(1,232	)		(833	)		(4,722	)

Cash flows from investing activities:
Acquisition of licenses		-			-			(90	)
Payments for notes receivable		-			(628	)		(1,173	)
Cash acquired from merger		-			-			14
Net cash used in investing activities		0			(628	)		(1,249	)

Cash flows from financing activities:
Net proceeds from the issuance of common stock		-			-			1,283
Payments of insurance note payable		(83	)		-			(145	)
Proceeds from convertible notes payable		1,215			1,785			4,192
Contributions from Pathfinder, LLC members		-			-			737
Net cash provided by financing activities		1,132			1,785			6,067

Net (decrease) increase in cash		(100	)		324			96
Cash at beginning of period		196			16			-
Cash at end of period	$	96		$	340		$	96

Supplementary disclosure of non-cash investing and financing activities:
Members' equity issued for license	$	-		$	-		$	11
Notes receivable and payable through intermediary entity		-						130
Long term payable for license		-			-			177
Financing of placement agent commission through notes payable		-			-			244
Financing of insurance premiums through notes payable		24			-			160
Common stock issued in settlement of Yissum liability		-			-			350
Conversion of notes into common stock		-			-			3,107
Details of merger with SyntheMed:
Fair value of assets acquired		-			-			201
Liabilities assumed		-			-			2,322
Non-cash consideration	$	-		$	-		$	6,020

See accompanying notes to the condensed consolidated financial statements

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

A) Basis of Presentation and Going Concern

The accompanying condensed consolidated financial statements of Pathfinder Cell Therapy, Inc., a Delaware corporation formerly known as “SyntheMed, Inc.” (“Pathfinder” or the “Company”), do not include all of the information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles; but, in the opinion of management, contain all adjustments (which consist of only normal recurring adjustments) necessary for a fair presentation of such financial information. Results of operations and cash flows for interim periods are not necessarily indicative of those to be achieved for full fiscal years. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2011 included in the Company’s Annual Report on Form 10-K.

On September 2, 2011, the Company completed a business combination (the “Merger”) with Pathfinder, LLC, a Massachusetts limited liability company, in accordance with the terms of that certain Agreement and Plan of Merger, dated as of December 22, 2010 (as subsequently amended, the “Merger Agreement”). As a result of the Merger, the Company acquired 100% of the outstanding membership interests of Pathfinder LLC in exchange for the issuance to the former members of Pathfinder, LLC of a number of shares of the Company’s common stock equal to approximately 80% of outstanding shares after issuance. Upon the Merger, the board of directors and officers of the Company were comprised of individuals designated by Pathfinder, LLC and the business of Pathfinder, LLC became the primary business of the Company. The Company changed its name to Pathfinder Cell Therapy, Inc. immediately prior to the Merger. Pathfinder, LLC, the Company’s wholly-owned subsidiary following the Merger, is deemed to be the “accounting acquirer,” and the transaction has been accounted for as a reverse acquisition of the Company by Pathfinder, LLC under the purchase method of accounting for business combinations. Accordingly, the information reflected in the accompanying condensed consolidated financial statements for periods prior to the Merger is that of Pathfinder, LLC, which began operations on November 4, 2008.

The Company is a development stage regenerative medicine company seeking to develop novel cell-based therapies for the treatment of a broad range of diseases and medical conditions characterized by organ-specific cell damage. Regarding the legacy SyntheMed business, the Company’s strategy includes continuing to seek a sale, licensing transaction or other strategic transaction for the assets of the business and maintaining the business on a limited basis without significant development or investment pending any such transaction.

The Company faces certain risks and uncertainties similar to those faced by other early stage regenerative medicine companies including its ability to obtain additional funding, the success and timetable of required clinical trials, its future profitability, uncertainty regarding development and commercialization of the Company’s product candidates, competition and technology change and government regulations, including the need for product approvals.

To date, Pathfinder, LLC has relied on the proceeds raised by the issuance of convertible debt and equity to fund its operating requirements. As of June 30, 2012, the Company does not anticipate having sufficient cash on hand or generating sufficient revenue from operations to meet the Company’s anticipated cash requirements based on its present plan of operations through June 30, 2013, without securing additional funds through the issuance of equity and/or debt. No assurance can be given that additional financing will be available to the Company on acceptable terms or at all. In the absence of an additional cash infusion, the Company will be unable to continue as a going concern.

These condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of the carrying amount of recorded assets and liabilities that might be necessary if the Company is unable to continue as a going concern. The report of the independent auditor on the Company’s financial statements for the year ended December 31, 2011 contains an explanatory paragraph referring to a substantial doubt concerning the Company’s ability to continue as a going concern.

B) Summary of Significant Accounting Policies

Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Pathfinder, LLC. All inter-company accounts and transactions have been eliminated in consolidation.

Use of estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions, on an ongoing basis. We evaluate our estimates, including those related to uncollectible receivables, inventory valuation allowance, the useful lives of intangible assets, valuation of stock-based compensation and income taxes, that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. The Company deposits cash and cash equivalents with high credit quality financial institutions and believes any amounts in excess of insurance limitations to be at minimal risk. Cash and cash equivalents held in these accounts are insured by the Federal Deposit Insurance Corporation up to a maximum of $250,000 through December 31, 2013, and $100,000 thereafter.

Intangible Assets

Intangible assets represent the intellectual property and other rights licensed to Pathfinder, LLC with respect to separate technologies under an agreement with each of the University of Glasgow and Massachusetts General Hospital (“MGH”). Intangible assets are amortized using the straight-line method over the estimated useful life of 15 years, which is based upon management’s timelines for the typical development, approval, and marketing and life cycle of pharmaceutical drug products.

Impairment of Long-Lived Assets

The Company evaluates its long-lived assets for indicators of possible impairment by comparison of the carrying amounts to future net undiscounted cash flows expected to be generated by such assets when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Should an impairment exist, the impairment loss would be measured based on the excess carrying value of the asset over the asset’s fair value or discounted estimates of future cash flows.

Stock based compensation

The Company follows the FASB ASC 718 “Compensation – Stock Compensation” which requires all share-based payments to employees, including grants of employee stock options, to be recognized as compensation expense over the requisite service period (generally the vesting period) in the financial statements based on their fair values. The impact of forfeitures that may occur prior to vesting is also estimated and considered in the amount of expense recognized. This estimate is adjusted periodically based on the extent to which actual forfeitures differ, or are expected to differ, from the previous estimate. In addition, the realization of tax benefits in excess of amounts recognized for financial reporting purposes will be recognized in the cash flow statement as a financing activity rather than as an operating activity.

Income taxes

The Company accounts for income taxes using the asset and liability method described in FASB ASC 740-10 “Income Taxes” the objective of which is to establish deferred tax assets and liabilities for the temporary differences between the financial reporting and the tax bases of the Company’s assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled. A valuation allowance related to deferred tax assets is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Fair Value

The carrying amounts of cash, accounts receivables, accounts payable, accrued expenses and notes payable approximate fair value based on their short-term maturity. The carrying value of the long term payable approximates fair value, as the interest rate used to discount the payable still approximates the Company’s current borrowing rate.

Research and development

All research and development activities, including any preclinical and clinical studies and product development activities, are outsourced (see Note K). Research and development costs, representing principally new product development and manufacturing development, are charged to expense as incurred.

Patent costs

Costs incurred in connection with acquiring patent rights and the protection of proprietary technologies are charged to expense as incurred.

Comprehensive Income (Loss)

The Company’s comprehensive loss is equal to its net loss for all periods presented, and, as a result, no statement of comprehensive loss has been included in the condensed consolidated financial statements.

C) Inventory

All inventories relate to the SyntheMed business and consist of the following:

	June 30,		December 31,
	2012		2011

Raw materials	$	21,000	$	32,000
Finished goods		36,000		19,000
	$	57,000	S	51,000

D) Note Receivable – SyntheMed, Inc.

During the six months ended June 30, 2011, under a revolving credit and security agreement originally entered into in September 2010, Pathfinder, LLC loaned the Company (formerly SyntheMed, Inc.) $628,000 and then recorded a full valuation reserve of $651,000 (consisting of principal and accrued interest). As of June 30, 2011, the entire principal balance owed to Pathfinder, LLC of $1,083,000 was fully reserved due to SyntheMed’s poor financial condition. All amounts outstanding under the revolving credit and security agreement were subsequently forgiven in connection with and pursuant to the Merger.

E) Notes Payable

[1] Convertible Notes Payable:

Since September 2010 and prior to the Merger, Pathfinder, LLC had been funding its operations as well as the operations of the Company (SyntheMed, Inc.) with proceeds from investors, including Breisgau BioVentures SA, an owner of 52.5% of the outstanding membership interests of Pathfinder, LLC prior to the Merger (see Note H[1]), through the issuance of convertible notes payable. The notes payable had an interest rate of 6% per annum, were due and payable on the earlier to occur of the first anniversary of issuance or the closing of the Merger and were convertible, at the election of the payee, into equity securities of the Company for the subscription price thereof in an offering by the Company conducted in connection with the Merger, which is referred to herein as the “Capital Raise.”

At the initial closing of the Capital Raise, which occurred on September 2, 2011 immediately after the Merger, the payees elected to convert the entire outstanding principal into the Company’s common stock sold in the placement (see Note H[2]). At June 30, 2012, the Company has included an accrual of approximately $96,000 for unpaid accrued interest, and such amount is included in Accrued Expenses in the accompanying condensed consolidated balance sheet.

During the six months ended June 2012, the Company borrowed from investors an aggregate amount of $1,215,000, evidenced by promissory notes bearing interest at 6% per annum. Principal and interest are due and payable on the first anniversary of issuance. At any time prior to completion or termination of the Capital Raise, the holder may elect to convert the principal amount of the promissory notes, and/or accrued interest thereon, into shares of the Company’s common stock at a price equal to the subscription price in the Capital Raise.

[2] Insurance Notes Payable:

In March 2012, the Company entered into a short term financing agreement covering $24,400 in aggregate premiums for product liability insurance relating to the SyntheMed business. The financed amount is payable in monthly installments each in the amount of $2,500 (including interest at 4.52% per annum) through December 2012.

In September 2011, the Company entered into two short term financing agreements for our directors’ and officers’ liability insurance premiums totaling $50,000 and $74,000 and payable in monthly installments including interest of $5,000 and $7,000, respectively. The monthly installments for both notes are due through July 2012 and carry an interest rate of 3.78% and 3.25% per annum, respectively.

[3] Note Payable – Clubb Capital Limited:

In September 2011, the Company issued a note payable to Clubb Capital Limited in the principal amount of $244,000, representing the deferred portion of the commission to which Clubb Capital Limited was entitled in connection with the initial closing of the Capital Raise. The principal balance (together with accrued interest thereon at the rate of 6% per annum) became due and payable on demand at any time on or after December 30, 2011.

F) Long-term payable

The Company has recorded a long term payable for its estimated licensing fee obligations under the MGH license agreement (See Note K[2]). The amounts recorded represent the projected future license fees payable based on the Company’s estimate of 2017 as the first year of commercial sale, discounted to the present value using the following assumptions: Net Present Value calculated as of the agreement’s effective date of April 13, 2009, using an estimated borrowing rate for the Company of 10%. If first commercial sale is not achieved by 2017, any additional license fees incurred under the agreement will continue to be capitalized and amortized over the remaining period in the term. An adjustment was recorded in the opening balance at January 1, 2011 to properly state the estimated value of the Company’s long term payable related to the MGH license agreement by increasing long-term payable by approximately $125,000, intangible assets by $83,000 and accumulated deficit by $42,000.

Under the agreement, prior to the achievement of the Company’s first commercial sale, license fees are due to MGH and payable as follows:

Year ending December 31,	Amount

2013	$	10,000
2014		75,000
2015		75,000
2016 and each year thereafter	$	150,000

G) Net Loss Per Common Share

Basic and diluted net loss per common share is computed using the weighted average number of shares outstanding at June 30, 2012 and excludes 37,717,000 common shares potentially issuable upon the exercise of outstanding options and warrants since their inclusion would have been anti-dilutive.

Basic and diluted net loss per common share for the historical financial statements was computed based on the exchange ratio of shares issued in the Merger.

H) Capital Transaction

[1] Merger transaction:

In connection with and pursuant to the Merger and at the date thereof, the Company issued an aggregate of 457,999,480 shares of common stock to the former members of Pathfinder, LLC in consideration for, among other things, 100% of the membership interests in Pathfinder, LLC.

Because the former members of Pathfinder, LLC owned approximately 80% of the voting stock of the Company immediately after the transaction, Pathfinder, LLC is deemed to be the accounting “acquirer” and the transaction has been accounted for as a reverse acquisition by Pathfinder, LLC of the Company under the purchase method of accounting for business. Accordingly, the assets acquired and liabilities assumed were recorded as of the date of the Merger at their estimated fair values, based on the fair market value of the outstanding common stock and outstanding options and warrants of the Company (formerly SyntheMed, Inc.) immediately prior to the Merger:

Fair value of SyntheMed’s common stock	$	5,725,000
Estimated fair value of SyntheMed stock options and stock warrants assumed		295,000

Total Merger consideration	$	6,020,000

The fair value of SyntheMed, Inc.’s common stock used in determining the purchase price was $0.05 per share, which was based on the price at which the common stock was sold in the initial closing of the Capital Raise immediately after the Merger. The fair value of SyntheMed, Inc.’s stock options and stock warrants was determined using the Black-Scholes option pricing model with the following assumptions:

	September 2, 2011

Underlying stock price	$	0.05
Expected stock price volatility		64.7% – 128.4	%
Risk-free interest rates		0.2 % – 3.15	%
Weighted average expected life		2.78 years
Expected dividend yield		0

Under the purchase method of accounting, the total purchase price is allocated to the acquired identifiable assets and liabilities assumed based on their estimated fair values as of the merger closing date. The excess of the purchase price over the fair value of assets acquired and liabilities assumed, if any, is allocated to goodwill.

Below is a breakdown of the assets acquired and liabilities assumed in the Merger:

Asset Allocation	Value
Accounts receivables		$	101,000
Inventory			76,000
Other assets (A)			37,000
Liabilities assumed (B)			(2,321,000	)

Total identifiable net liabilities			(2,107,000	)
Goodwill			8,127,000

Total fair value of SyntheMed assets and liabilities		$	6,020,000

(A)	Includes cash, prepaid expenses and fixed assets

(B)	Includes $1,343,000 notes payable to Pathfinder LLC (including accrued interest) (see Note E[1])

During the third quarter of 2011, the Company performed an impairment analysis for the goodwill generated by the 2011 Merger transaction using a discounted cash flow methodology, and determined that the entire carrying amount was impaired. Accordingly, an impairment charge of $8,127,000 was recorded at September 30, 2011.

Acquisition costs incurred by the Company related to the Merger were approximately $800,000 and were expensed as incurred.

The below schedule presents pro forma revenues and earnings information of the Company as if the Merger had occurred on January 1, 2011, for the following periods (in millions, except per share amounts):

	Three months ended			Six months ended
	June 30, 2011			June 30, 2011
	(Unaudited)			(Unaudited)
Revenues	$	0.1		$	0.1
Net Loss	$	(0.9)	(a)	$	(10.4)	(b)
Basic and diluted net loss per common share	$	0.00		$	0.02

Weighted average shares outstanding		662.2			662.2

(a) Pro forma net loss includes $0.4 million net gain from reversal of allowance on note receivable, and includes a $0.3 million net loss related to the operations of the SyntheMed business.

(b) Pro forma net loss includes $8.1 million goodwill impairment charge, $0.7 million net gain from reversal of allowance on note receivable, $0.5 million stock based compensation charge, and a $0.7 million net loss related to the operations of the SyntheMed business.

[2] Private Placement:

On September 2, 2011, immediately after the Merger, the Company completed the initial closing of the Capital Raise in which it sold an aggregate of 89,661,520 shares of common stock at a price of $0.05 per share, for gross proceeds of $4,483,076. Of the proceeds, $1,375,500 was paid in cash, and the balance was paid by conversion of Pathfinder, LLC debt held by investors in Pathfinder, LLC (see Note E[1]) as contemplated by the Merger Agreement.

Clubb Capital Limited, of which Mr. Joerg Gruber is Chairman, acted as placement agent for the Capital Raise and received a commission equal to 7% of the gross proceeds, a portion of which was paid in cash and a portion of which was payable by a short-term note. (See Note E[3]) In addition, Clubb Capital Limited or its designees were granted warrants to purchase up to 6,276,306 shares of Pathfinder common stock (representing 7% of the number of shares sold in the closing), exercisable at $0.055 per share and expiring September 30, 2016. The shares were issued in reliance upon the exemption from registration set forth in Section 4(2) of the Act and/or Rule 506 of Regulation D and/or Regulation S.

[3] Other capital transactions related to the Merger:

Under the license agreement with MGH, Pathfinder, LLC was obligated in the event that it was acquired or substantially all of its assets were sold, to pay to MGH an amount equal to 3% of the sale price received. The Merger qualified as an acquisition of Pathfinder, LLC for purposes of this provision. Pursuant to an understanding agreed prior to the Merger, the principal member of Pathfinder, LLC funded the obligation to MGH by accepting a reduction in the number of shares to which it would otherwise was entitled in the Merger as a member of Pathfinder equal in amount to the number of shares owed to MGH and agreeing that those shares be issued instead to MGH. The Company recognized a non-cash charge at the time of the Merger in the amount of $687,000, representing the fair market value of the shares so acquired by MGH.

[4] Stock based compensation:

As a result of the Merger each option to purchase membership interests of Pathfinder, LLC outstanding immediately prior to the Merger was assumed by the Company and converted into an option to purchase Company common stock, the number of underlying shares and exercise price per share being adjusted to reflect the Merger exchange ratio. Additionally, in connection with and as contemplated by the Merger, the Company increased the number of shares authorized for issuance under its 2006 Stock Option Plan to 25 million.

At June 30, 2012, the Company has one stock-based compensation plan, the 2006 Stock Option Plan, under which the Company is authorized to issue incentive stock options and non-qualified stock options to purchase up to an aggregate of 25,000,000 shares of common stock. At June 30, 2012, there were 4,871,000 options available for grant under this plan. The exercise price is determined by the Compensation Committee of the Board of Directors at the time of the granting of an option. Options vest over a period not greater than five years, and expire no later than ten years from the date of grant.

There were no options granted during the six months ended June 30, 2012 and 2011, respectively.

The following summarizes the activities of the Company’s stock options for the six months ended June 30, 2012 (shares in thousands):

	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Number of shares under option plans:
Outstanding at January 1, 2012		23,826	$	0.19	3.6 Years
Cancelled, expired or forfeited		2,716		0.54
Granted		-		-		-
Outstanding at June 30, 2012		21,110	$	0.14	3.7 Years		$	0
Exercisable at June 30, 2012		20,260	$	0.14	3.7 Years

Expected to vest after June 30, 2012		21,010	$	0.14	3.7 Years		$	0

As of June 30, 2012, there was approximately $13,000 of unrecognized stock compensation related to unvested awards (net of estimated forfeitures) expected to be recognized over the next 27 months.

The Company has recorded a charge of $7,000 in general and administrative expense for the six months ended June 30, 2012 for the pro-rata share of the fair value of the unvested options granted during September 2011 that vest through September 2014.

At June 30, 2012, the Company had 100,000 options outstanding which vest upon the achievement of certain performance criteria. These options have a term of 10 years from date of grant and an exercise price of $0.80.

[5] Warrants:

As of June 30, 2012, the following warrants were outstanding to purchase up to 16,606,306 shares of the Company’s Common Stock:

700,000		exercisable at $0.50 per share which expire on September 30, 2012
9,630,000		exercisable at $0.20 per share which expire on September 30, 2013
6,276,306		exercisable at $0.055 per share which expire on September 30, 2016

16,606,306

I) Income Taxes

At June 30, 2012 and December 31, 2011, the Company had a deferred tax asset which was fully reserved by a valuation allowance to reduce the deferred tax asset to the amount that is expected to be realized.

As a result of the Merger, the Company’s net operating losses and research and development credits will be subject to a limitation pursuant to Section 382. In general, the formula would be the value of the equity times the prescribed federal rate of 3.06%.

As of June 30, 2012, the Company has not recorded any provisions for accrued interest and penalties related to uncertain tax positions.

By statute, tax years 2008 through 2011 remain open to examination by the major taxing jurisdictions to which the Company is subject.

J) Nature of Business

The Company’s revenues from the sale of REPEL-CV for the periods ended June 30, 2012 was as follows:

Geographic Information
		Three Months Ended June 30, 2012	Six Months Ended June 30, 2012

		Revenues

United States	$	1,000	$	13,000
Russia		3,000		13,000
Columbia		14,000		14,000
Hong Kong		11,000		18,000
Czech Republic		-		5,000

	$	29,000	$	63,000

There were no comparable amounts for the corresponding prior year periods.

All of the Company’s Long-Lived Assets are located in the United States of America.

K) Commitments and Other Matters

[1] University of Glasgow Agreement

The Company has entered into an agreement for a worldwide exclusive license for technology developed by the University of Glasgow. Under the terms of the license, the Company is obligated to pay a royalty ranging from 1.5 - 3% of all sales based on the technology licensed from the University of Glasgow, up to a cumulative total of $12,000,000. The agreement terminates when the last patent expires or fifteen years from the date of the first commercial sale of a product.

In 2009, the Company entered into a research agreement with the University of Glasgow, whereby the University was to conduct further research on behalf of the Company relating to the technology licensed by the Company from the University. The agreement was subsequently extended for two one-year terms through March 24, 2012. In April 2012, the parties extended the research period for an additional twelve-month period at a cost of approximately GBP 432,000 (approximately $678,000 based on exchange rates in effect on June 30, 2012), payable by the Company over the course of the twelve months. Under these agreements, the Company recorded an expense for the three and six month period ended June 30, 2012 of $199,000 and $331,000, respectively, compared to $55,000 and $172,000 for the corresponding prior year periods.

[2] MGH Agreement

The Company has entered into an agreement for a worldwide exclusive license for a family of patents covering related technology from the Massachusetts General Hospital (MGH). Under the license agreement, the Company is obligated to pay a royalty ranging from 10 - 20% of all net sales of the Company’s product sales relating to the MGH licensed technology, up to a maximum amount of $15,000,000, and additional royalties of 3% of all net sales based on the technology licensed from the University of Glasgow, up to a cumulative total of $15,000,000. The agreement terminates when the last issued patent expires or is abandoned.

[3] Yissum Agreement

In December 2011, the Company amended the license agreement with Yissum Research Development Company of the Hebrew University of Jerusalem (“Yissum”), for the polymer technology used in the SyntheMed business in exchange for a cash payment of $150,000 and the issuance of 1,000,000 shares of its common stock to Yissum. The amended agreement modified certain rights of use to the technology, settled certain claims related to unpaid royalty obligations of the Company and established the Company’s rights under the new agreement to not be subject to payments of minimum royalties, as they were under the prior agreement.

Pursuant to the terms of the Merger, effective December 1, 2011, the Company issued to the former members of Pathfinder, LLC an additional aggregate of 4,000,000 shares of the Company’s common stock to protect against dilution associated with the 1,000,000 share issuance to Yissum described above.

As a result of the above transactions, in December 2011, the Company recorded a charge of $350,000 equal to the fair value of the 5,000,000 shares issued to the former Pathfinder, LLC members and to Yissum based on the market price of the Company’s stock on December 1, 2011. This charge was offset by the reversal of the Yissum Agreement liability as of December 1, 2011 which amounted to $438,000, for a net gain of $88,000.

[4] Employment Agreement

At June 30, 2012, the Company had an employment agreement with one individual that is scheduled to expire in September 2012, subject to automatic renewal for one-year periods. Pursuant to this agreement, in case of early termination under certain circumstances, the Company’s commitment regarding cash severance benefits aggregates $27,000 at June 30, 2012. Effective January 1, 2012, the Company’s annual salary obligation is $107,000 plus the applicable 2012 cost of living increase.

L) Related Party Transactions

Two of Pathfinder, LLC’s founding members, Dr. Richard Franklin and Mr. Joerg Gruber, have been directors of the Company (formerly SyntheMed, Inc.) since prior to the Merger. Dr. Franklin, the Company’s CEO and President, was SyntheMed’s sole executive officer at the time of the Merger. The Company pays Dr. Franklin a monthly consulting fee of $15,000. Mr. Gruber, the Company’s Chairman, is Chairman and a director of Clubb Capital Limited, the placement agent for the Capital Raise (see Note H[2]).

Between September 2010 and March 2011, Pathfinder, LLC borrowed an aggregate principal amount of $1,357,000 from Breisgau BioVentures SA, an owner of 52.5% of the outstanding membership interests of Pathfinder, LLC prior to the Merger. Breisgau subsequently converted such principal amount into shares of the Company’s common stock in the Capital Raise. See Note E[1].

The Company’s core technology was originally derived from research conducted at the University of Glasgow. Pathfinder relies on the University of Glasgow as well as third party laboratories for its research and development activities, all of which is funded by Pathfinder. Intellectual property resulting from activities conducted at the University of Glasgow is owned by the university and licensed to Pathfinder under the terms of a license agreement between the university and Pathfinder. The university owns an equity interest in Pathfinder of 9.5% beneficial ownership percentage of the Company. Additionally, Dr. Paul Shiels led and Dr. Wayne Davies participated in the research conducted at the university and are co-inventors of the technology derived therefrom. Dr. Shiels is affiliated with the university and Dr. Davies was affiliated with the university at the time of the research and has since retired from that position. Dr. Shiels assists with the Company’s research and development program through the university and Dr. Davies provides scientific consulting services to the Company. As of June 30, 2012, Dr. Shiels and Dr. Davies beneficially owned 5.7% and 3.8%, respectively, of the outstanding shares of common stock of the Company.

M) Subsequent Events

Subsequent to June 30, 2012, the Company borrowed an additional $50,000 on the same terms as amounts borrowed during the quarter then ended. See Note E[1].

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Certain statements in this Report under this Item 2 and elsewhere constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “anticipates”, “plans”, “intends” and “expects” and similar expressions are intended to identify such forward-looking statements. Forward-looking statements include, without limitation, statements regarding management’s plans, strategy and objectives for future operations, future cash requirements and liquidity sources, the timing or success of any pre-clinical or proposed clinical trial, the timing or ability to achieve necessary regulatory approval, our plans or ability to successfully commercialize any future product candidates or enter into arrangements with third parties to assist with any product development, manufacture or marketing activities and factors associated with the market for any future product candidate. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of our Company, or industry results, to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. Such risks and uncertainties include but are not limited to (i) risks associated with the success of the Company’s early stage research programs, (ii) risks associated with regulatory approvals including uncertainties regarding the nature and scope of required clinical studies and the success of those studies, (iii) potential inability to secure funding as and when needed and (iv) product development, technology, manufacturing, marketing and competition risks associated with developing and commercializing therapies based on Pathfinder Cells. Reference is made to our annual report on Form 10-K for the year ended December 31, 2011 filed with the Securities and Exchange Commission on March 30, 2012 for a more extensive description of these and other risks and uncertainties. These forward-looking statements speak only as of the date hereof. We undertake no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

The discussion and analysis of our financial condition and results of operations set forth below under “Results of Operations” and “Liquidity and Capital Resources” should be read in conjunction with our financial statements and notes thereto appearing elsewhere herein.

General

We are a development stage regenerative medicine company seeking to develop novel cell-based therapies for the treatment of a broad range of diseases and medical conditions characterized by organ-specific cell damage. Based on preclinical data obtained to date, we have identified diabetes, renal disease, myocardial infarction and peripheral vascular disease as potential indications for therapies based on our technology. Other potential indications could include kidney transplantation, chronic heart disease, stroke, osteoarthritis and liver disease.

Our development activities with respect to cell-based therapies have been limited to laboratory and preclinical testing. Our development plan calls for conducting additional preclinical safety and efficacy studies with respect to indentified and other potential indications, with the goal of commencing a Phase I clinical study for a lead indication during 2014.

In addition to our cell therapy business which we acquired in the Merger, we also continue the business conducted by our company prior to the Merger, which we refer to as the “SyntheMed business.” Through the SyntheMed business we have been selling REPEL-CV® Bioresorbable Adhesion Barrier domestically since obtaining US Food and Drug Administration clearance in March 2009 and internationally since obtaining CE Mark approval in August 2006. In the United States and some foreign countries, REPEL-CV’s marketing approval is limited to the pediatric market, while the CE Mark approval, which covers the European Union (EU) and other countries, as well as other foreign approvals subsequently obtained, apply broadly to both the adult and pediatric market segments.

Our cell therapy business represents our principal operations and we intend to devote substantially all of our efforts and resources to the development and commercialization of our cell therapy technology. Regarding the legacy SyntheMed business, our strategy includes continuing to seek a sale, licensing transaction or other strategic transaction for the assets of the business and maintaining the business on a limited basis without significant development or investment pending any such transaction.

Merger with Pathfinder, LLC

On September 2, 2011, we completed a reverse merger, business combination with Pathfinder, LLC in accordance with the terms of that certain Agreement and Plan of Merger, dated as of December 22, 2010, by and among SyntheMed, SYMD Acquisition Sub, Inc., a wholly-owned subsidiary of SyntheMed (“Merger Sub”), and Pathfinder, LLC (as amended, the “Merger Agreement”), pursuant to which Merger Sub merged with and into Pathfinder, LLC, with Pathfinder, LLC continuing as the surviving corporation and a wholly-owned subsidiary of our company. We refer to the transaction as the “Merger.”

As a result of the Merger and in accordance with the Merger Agreement, each outstanding membership interest of Pathfinder, LLC was converted into the right to receive shares of Pathfinder common stock based on an exchange ratio of four times the number of shares of Pathfinder common stock outstanding or deemed outstanding immediately prior to the Merger divided by the number of Pathfinder, LLC membership interests outstanding immediately prior to the Merger. In addition, each option to purchase membership interests of Pathfinder, LLC outstanding immediately prior to the Merger was assumed by Pathfinder and converted into an option to purchase Pathfinder common stock, the number of underlying shares and exercise price per share being adjusted to reflect the exchange ratio.

Upon completion of the Merger, the Pathfinder, LLC members immediately prior to the Merger owned approximately 80% of the outstanding common stock of the Company and the Company's stockholders immediately prior to the Merger owned approximately 20% of the outstanding common stock of the Company, in each case without taking into account (i) any shares of common stock issuable pursuant to then outstanding options or warrants of the Company or options to purchase membership interests of Pathfinder, LLC or (ii) the Capital Raise (defined under “- Liquidity and Capital Resources”). Effective December 1, 2011, we restructured the arrangement with Yissum relating to our Polymer Technology and in connection therewith issued shares of our common stock to Yissum. Pursuant to and as contemplated by the terms of the Merger Agreement, the former members of Pathfinder, LLC were issued additional shares of our common stock to protect against the dilution associated with the Yissum issuance.

Pathfinder, LLC was deemed to be the “accounting acquirer” in the Merger, and the transaction has been accounted for as a reverse acquisition of our company by Pathfinder, LLC under the purchase method of accounting for business combinations in accordance with United States generally accepted accounting principles. Accordingly, the information reflected in the accompanying Condensed Consolidated Financial Statements and in “-Results of Operations” below for periods prior to the Merger is that of Pathfinder, LLC, which began operations on November 4, 2008.

Critical Accounting Policies and Estimates

The preparation of our financial statements in accordance with accounting principles generally accepted in the United States of America requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures in a given reporting period. On an on-going basis, we evaluate our estimates, including those related to uncollectible receivables, inventory valuation allowance, the useful lives of intangible assets, valuation of stock-based compensation and income taxes. We base these estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily available from other sources. Actual results may vary from these estimates under different assumptions or conditions. A more detailed discussion of the application of these and other accounting policies can be found in Note B to the Consolidated Financial Statements set forth in Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2011. Actual results may differ from these estimates.

Results of Operations

The discussion of our results of operations set forth below reflects the results of operations of Pathfinder, LLC for periods ended on or prior to September 2, 2011, the date of the Merger, and the consolidated results of operations of the Company (formerly SyntheMed, Inc.) and Pathfinder, LLC for periods on or after such date.

Revenue for the three and six months ended June 30, 2012 was $29,000 and $63,000, respectively, all of which is attributable to REPEL-CV product sales. There were no comparable amounts for the prior year, as the prior year does not include results of operations for the SyntheMed business and Pathfinder LLC has not generated any revenue since inception.

Cost of goods sold for the three and six months ended June 30, 2012 was $14,000 and $26,000, respectively. There were no comparable amounts for the prior year. Cost of goods sold reflects raw material costs and the cost of processing and packaging REPEL-CV into saleable form.

We incurred research and development expenses of $399,000 and $687,000 for the three and six months ended June 30, 2012, respectively, compared to $440,000 and $783,000 for the corresponding prior year periods, a decrease of 9.3% or $41,000 for the three month period and a decrease of 12.2% or $96,000 for the six month period. The decrease for the three month period is primarily attributable to decreases in spending on pre-GMP services for cell development and production for use in pre-clinical animal models of $175,000 and decreased consulting fees of $11,000, offset by increased fees under the research agreement with the University of Glasgow of $74,000, increased legal fees of $37,000 and increased expenses incurred for the legacy SyntheMed business of $30,000. The decrease for the six month period is primarily attributable to decreases in spending on pre-GMP services for cell development and production for use in pre-clinical animal models of $335,000 and decreased consulting fees of $11,000, offset by increased fees under the research agreement with the University of Glasgow of $159,000 and increased expenses incurred for the legacy SyntheMed business of $101,000.

General and administrative expenses totaled $223,000 and $496,000 for the three and six months ended June 30, 2012, respectively, compared to $156,000 and $298,000 for the corresponding prior year periods, an increase of 43.2% or $67,000 for the three month period and an increase of 66.4% or $198,000 for the six month period.. The increase for the three month period is primarily attributable to increased salary related expenses of $40,000, increased professional fees of $11,000, increased Board of Director expenses of $20,000 and insurance expense of $36,000, offset by decreased consulting fees of $20,000, office related expense of $14,000 and travel related expenses of $7,000. The increase for the six month period is primarily attributable to increased salary related expenses of $87,000, increased professional fees of $56,000, increased Board of Director expenses of $44,000 and insurance expense of $71,000, offset by decreased consulting fees of $20,000, office related expense of $11,000 and travel related expenses of $31,000.

We incurred sales and marketing expenses of $6,000 and $13,000 for the three and six months ended June 30, 2012, respectively. There were no comparable amounts for the prior year. The Company’s sales and marketing expenses are related to the sale of REPEL-CV.

Net interest expense was of similar amounts for all periods presented.

Other expenses included $358,000 and $651,000 for the three and six months ended June 30, 2011, respectively, related to the provisions for losses on notes and interest receivable (see Note D of Notes to Condensed Consolidated Financial Statements). There was no comparable amount for the current year period.

Our net loss was $634,000 and $1,191,000 for the three and six months ended June 30, 2012, respectively, compared to $974,000 and $1,763,000 for the comparable prior year periods, a decrease of 34.9% or $340,000 for the three month period and a decrease of 32.4% or $572,000 for the six month period. The decrease is primarily attributable to the factors mentioned above. We expect to incur losses for the foreseeable future.

Liquidity and Capital Resources

At June 30, 2012 we had cash of $96,000 and negative working capital of $1,885,000, compared to cash of $196,000 and negative working capital of $710,000 at December 31, 2011.

Net cash used in operating activities was $1,232,000 for the six months ended June 30, 2012, compared to $833,000 for the corresponding prior year period. Net cash used in operating activities for the current year period was primarily comprised of a net loss of $1,191,000, combined with a decrease in accounts payable and accrued expenses totaling $183,000, offset by decreases in accounts receivable and prepaid expenses totaling $131,000 and the impact of $17,000 in non-cash charges. Net cash used in operating activities for the prior year was comprised of a net loss of $1,763,000, increases in interest receivable and accounts receivable totaling $26,000, offset by a decrease in prepaid expenses of $14,000 and increases in accounts payable and accrued expenses totaling $285,000 and the impact of $657,000 in non-cash charges, primarily for the provisions for losses on notes and interest receivable of $651,000.

Net cash used by investing activities for the six months ended June 30, 2011 was $628,000, which related to short-term loans by Pathfinder, LLC to SyntheMed under the credit and security agreement described below. There was no comparable amount for the current year period.

Net cash provided by financing activities for the six months ended June 30, 2012 was $1,132,000, compared to $1,785,000 for the prior year period. The current year amount was comprised of $1,215,000 of proceeds from short term notes payable, offset by $83,000 in payments of insurance notes payable for the financing of our product liability insurance premiums and our directors’ and officers’ insurance premiums. The prior year amount was comprised entirely of proceeds from short term notes payable.

Recent Financings

Immediately following the Merger and as contemplated thereby, on September 2, 2011 we completed the initial closing of a private placement (the “Capital Raise”) in which we sold an aggregate of 89,661,520 shares of our common stock, representing approximately 13.5% of the shares of our common stock outstanding after issuance, at a price of $0.05 per share, for net proceeds of $4,146,000. Of the proceeds, $1,375,000 was paid in cash, and the balance was paid by conversion of Pathfinder, LLC debt held by investors in Pathfinder, LLC, as contemplated by the Merger Agreement. The converted debt was evidenced by promissory notes issued by Pathfinder, LLC between September 2010 and July 2011 to fund its operating costs, including its loans to our company that were cancelled in connection with the Merger. The notes bore interest at 6% per annum, were due and payable on the earlier to occur of the first anniversary of issuance or the closing of the Merger and were convertible, at the election of the payee, into equity securities of our company for the subscription price thereof in an offering by our company conducted in connection with the Merger. At June 30, 2012, we owed approximately $96,000 for unpaid accrued interest on the converted notes. Clubb Capital Limited, of which Mr. Joerg Gruber is Chairman, acted as placement agent for the financing and received a commission equal to 7% of the gross proceeds, a portion of which was paid in cash and a portion of which was payable by a note bearing interest at 6% per annum, payable on demand after December 30, 2011. In addition, Clubb Capital Limited or its designees were granted warrants to purchase up to 6,276,306 shares of our common stock (representing 7% of the number of shares sold in the placement), exercisable at $0.055 per share and expiring September 30, 2016.

Since February 2012, we have borrowed from investors an aggregate principal amount of $1,215,000. An additional $50,000 was borrowed in July 2012. The borrowings are evidenced by promissory notes bearing interest at 6% per annum. Principal and interest are due and payable on the first anniversary of issuance. At any time prior to completion or termination of the Capital Raise, the holders may elect to convert the principal amount of the promissory notes, and/or accrued interest thereon, into shares of our common stock in the Capital Raise at the subscription price thereof.

The cash balance as of June 30, 2012 and the subsequent borrowings of $50,000 in July 2012 are not sufficient to meet our anticipated cash requirements for the next twelve months. We will need to raise additional funds to support our planned operations. We plan to raise up to an additional approximately $300,000 in the Capital Raise, which would result in total gross proceeds for the Capital Raise, including converted and convertible debt, to approximately $6 million. Even if we are successful in doing so, of which there can be no assurance, we will nevertheless need to raise additional capital to fund our plan of operations. During the next 12 months, we anticipate spending approximately $3 million on research and development and other activities, assuming we are successful in raising the necessary capital.

If we are unable to obtain adequate financing on a timely basis, we may be required to delay, reduce the scope of or eliminate one or more of our planned development programs and otherwise limit our operations.

Our principal contractual obligations, which include the obligations of our wholly-owned subsidiary, Pathfinder, LLC, include (i) a commitment to fund approximately $678,000 in research and development activities through the University of Glasgow through March 2013, and (ii) cumulative license fees anticipated to aggregate $315,000 through 2017 under the license agreement with Massachusetts General Hospital. If first commercial sale is not achieved by 2017, annual payments of $150,000 will be required thereafter until first commercial sale. In addition, at June 30, 2012, we had an employment agreement with one individual that is scheduled to expire in September 2012, subject to automatic renewal for one-year periods. Pursuant to this agreement, in case of early termination under certain circumstances, our commitment regarding cash severance benefits aggregates $27,000 at June 30, 2012.

Due to our lack of profitable operations and our need to continue to raise funds, our independent registered public accounting firm has included in its report on our 2011 audited financial statements an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our CEO and CFO, who are our principal executive and principal financial officers, after evaluating the effectiveness of our "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934 Rule 13a-15(e); collectively, “Disclosure Controls”) as of the end of the period covered by this quarterly report (the "Evaluation Date") have concluded that as of the Evaluation Date, our Disclosure Controls were effective to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified by the SEC, and that material information relating to our company and any consolidated subsidiaries is made known to management, including our Chief Executive Officer and Chief Financial Officer, particularly during the period when our periodic reports are being prepared to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

In connection with the evaluation referred to in the foregoing paragraph, we have identified no change in our internal control over financial reporting that occurred during the quarter ended June 30, 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Our management, including our CEO and CFO, who are our principal executive and principal financial officers, does not expect that our Disclosure Controls or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

PART II - OTHER INFORMATION

Item 6. Exhibits

10.1	Promissory Note issued by Registrant in favor of Skye Asset Management SA in the principal amount of $270,000.

10.2	Promissory Notes issued by Registrant in favor of Ventura, Inc. in the aggregate principal amount of $275,000.

31.1	Certification of Principal Executive Officer Pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Certification of Principal Financial Officer Pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1	Certification of Principal Executive Officer Pursuant to 18 U.S.C.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2	Certification of Principal Financial Officer Pursuant to 18 U.S.C.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101

Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Condensed Statements of Operations for the three and six month periods ended June 30, 2012 and 2011 and the cumulative period from November 4, 2008 (inception) to June 30, 2012; (ii) the Condensed Consolidated Balance Sheets at June 30, 2012 and December 31, 2011; (iii) the Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2012 and 2011 and the cumulative period from November 4, 2008 (inception) to June 30, 2012 and (iv) the Notes to the Condensed Consolidated Financial Statements, tagged as blocks of text.

SIGNATURE

In accordance with 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.

	Pathfinder Cell Therapy, Inc.

	By:	/s/ Richard L. Franklin, M.D.
		Richard L. Franklin, M.D.
		CEO
		Dated: August 14, 2012


	By:	/s/ John M. Benson
		John M. Benson
		CFO
		Dated: August 14, 2012

Pathfinder Cell Therapy, Inc. - FORM 10-Q - August 14, 2012

Attached files

Pathfinder Cell Therapy, Inc. Reports