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EX-31.2 - CERTIFICATION - Pathfinder Cell Therapy, Inc.f10q0314ex31ii_pathfinder.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 March 31, 2014
 
OR

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
incorporation or organization) 
 
(I.R.S. Employer
Identification No.) 
     
12 Bow Street, Cambridge,
 
 
Massachusetts
 
02138
(Address of principal executive offices)
  (Zip Code)
 
 
 (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 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 March 31, 2014
 


 
 

 
 
Pathfinder Cell Therapy, Inc.
 
INDEX
 
   
Page
 
     
         
     
         
      3  
           
      4  
           
      5  
           
      6  
           
      7  
           
    15  
           
    19  
           
       
           
    20  
           
      21  
 
 
 

 
 
 
 
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands, except per share data)
(unaudited)
 
   
Three Months Ended
   
November 4, 2008
(Inception) Through
 
   
March 31,
   
March 31,
 
   
2014
   
2013
   
2014
 
Revenue
                 
Product sales
 
$
-
   
$
28
   
$
241
 
Revenue
   
-
     
28
     
241
 
                         
Cost of goods sold
   
-
     
12
     
113
 
                         
Gross profit
   
-
     
16
     
128
 
                         
Operating expenses:
                       
Research and development
   
118
     
228
     
3,974
 
General and administrative
   
300
     
319
     
5,189
 
Sales and marketing
   
5
     
9
     
83
 
Impairment of intangible assets
   
-
     
-
     
8,288
 
Operating expenses
   
423
     
556
     
17,534
 
                         
Loss from operations before other income / (expense)
   
(423
)
   
(540
)
   
(17,406
)
                         
Other income/(expense):
                       
Interest (expense), net
   
(62
)
   
(41
)
   
(499
)
Reversal of a liability
   
 -
     
 -
     
374
 
Other income/(expense)
   
(62
)
   
(41
)
   
(125
)
                         
Loss before income tax benefit
   
(485
)
   
(581
)
   
(17,531
)
Income tax benefit
   
-
     
-
     
-
 
                         
Net loss
 
$
(485
)
 
$
(581
)
 
$
(17,531
)
                         
Net loss per common share-basic and diluted
 
$
(0.00
)
 
$
(0.00
)
       
                         
Weighted average shares outstanding
   
667,162
     
667,162
         
 
See accompanying notes to the condensed consolidated financial statements
 
 
3

 
 
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
 
   
March 31,
   
December 31,
 
   
2014
   
2013
 
 
(unaudited)
       
ASSETS
           
             
Current assets:
           
Cash  
 
$
66
   
$
44
 
Prepaid expenses
   
41
     
75
 
Total current assets
   
107
     
119
 
                 
Intangible, net of accumulated amortization
   
35
     
36
 
TOTAL
 
$
142
   
$
155
 
                 
LIABILITIES AND CAPITAL DEFICIT
               
                 
Current liabilities:
               
Accounts payable
 
$
188
   
$
190
 
Accrued expenses (including related party amount of $358 and $312, respectively)
   
692
     
527
 
Insurance note payable
   
23
     
45
 
Note payable - Clubb Capital
   
244
     
244
 
Convertible notes payable (including related party amount of $2,465 and $2,135, respectively)
   
4,030
     
3,700
 
Total current liabilities
   
5,177
     
4,706
 
                 
Commitments and other matters (Note I)
               
                 
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 - 667,162  at March 31, 2014 and December 31, 2013
   
667
     
667
 
Additional paid-in capital
   
11,829
     
11,828
 
Accumulated deficit
   
(17,531
)
   
(17,046
)
Total capital deficit
   
(5,035
)
   
(4,551
)
TOTAL
 
$
142
   
$
155
 
 
See accompanying notes to the condensed consolidated financial statements
 
 
4

 
 
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
NOVEMBER 4, 2008 (INCEPTION) THROUGH March 31, 2014
  (In Thousands, except per share data)
 
   
Common Stock
   
Additional
   
Accumulated
       
   
Shares
   
Amount
   
Paid-in Capital
   
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
      -         -         -         (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
   
-
     
-
     
12
     
-
     
12
 
                                         
Net Loss
   
-
     
-
     
-
     
(2,156
)
   
(2,156
)
                                         
Balance, December 31, 2012
   
667,162
     
667
     
11,823
     
(15,341
)
   
(2,851
)
                                         
Stock-based Compensation
   
-
     
-
     
5
     
-
     
5
 
                                         
Net Loss
   
-
     
-
     
-
     
(1,705
)
   
(1,705
)
                                         
Balance, December 31, 2013
   
667,162
     
667
     
11,828
     
(17,046
)
   
(4,551
)
                                         
Stock-based Compensation
   
-
     
-
     
1
     
-
     
1
 
                                         
Net Loss
   
-
     
-
     
-
     
(485
)
   
(485
)
                                         
Balance, March 31, 2014
   
667,162
     
667
     
11,829
     
(17,531
)
   
(5,035
)
 
* 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
 
See accompanying notes to the condensed consolidated financial statements
 
 
5

 
 
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
 
   
Three Months ended
March 31,
   
November 4,
2008
(Inception) Through
March 31,
 
   
2014
   
2013
   
2014
 
Cash flows from operating activities:
                 
Net loss
 
$
(485
)
 
$
(581
)
 
$
(17,531
)
Adjustments to reconcile net loss to
                       
Net cash used in operating activities:
                       
Depreciation and amortization
   
1
     
4
     
83
 
Stock based compensation relating to options
   
1
     
2
     
545
 
Shareholder contribution -3% merger fee due to MGH
   
-
     
-
     
687
 
Goodwill / intangible impairment loss
   
-
     
-
     
8,288
 
Reversal of liability
   
-
     
-
     
(374
)
Accretion of long term liability
   
-
     
     
20 
 
                         
Changes in operating assets and liabilities:
                       
Decrease  in accounts receivable
   
-
     
7
     
101
 
Decrease in inventory
   
-
     
11
     
76
 
Decrease in prepaid expenses
   
34
     
34
     
316
 
(Decrease) increase in accounts payable
   
(2
)
   
168
     
185
 
Increase in accrued expenses
   
165
     
65
     
203
 
Net cash used in operating activities
   
(286
)
   
(286
)
   
(7,401
)
                         
Cash flows from investing activities:
                       
Acquisition of licenses
   
-
     
-
     
(90
)
Payments for notes receivable
   
-
     
-
     
(1,173
)
Cash acquired from merger
   
-
     
-
     
14
 
Net cash used in investing activities
   
0
     
0
     
(1,249
)
                         
Cash flows from financing activities:
                       
Net proceeds from the issuance of common stock
   
-
     
-
     
1,283
 
Payments of insurance note payable
   
(22
)
   
(25
)
   
(311
)
Proceeds from convertible notes payable
   
330
     
305
     
7,007
 
Contributions from Pathfinder, LLC members
   
-
     
-
     
737
 
Net cash provided by  financing activities
   
308
     
280
     
8,716
 
                         
Net increase (decrease) in cash
   
22
     
(6
)
   
66
 
Cash at beginning of period
   
44
     
9
     
-
 
Cash at end of period
 
$
66
   
$
3
   
$
66
 
                         
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
     
334
 
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
 
 
6

 
 
(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, 2013 included in the Company’s Annual Report on Form 10-K.
 
In September 2011, the Company completed a reverse merger, business combination (the “Merger”) with Pathfinder, LLC, a Massachusetts limited liability company.  Pathfinder, LLC was deemed 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.     Following the transaction, the business of Pathfinder, LLC became the primary business of the Company and the legacy SyntheMed business has continued on a limited basis without significant development or investment.  

The Company is a development stage regenerative medicine company seeking to develop novel cell-based and related therapies for the treatment of a broad range of diseases and medical conditions characterized by organ-specific cell damage. 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, the Company has relied on the proceeds raised by the issuance of convertible debt and equity to fund its operating requirements. As of March 31, 2014, the Company does not have sufficient cash on hand or anticipate generating sufficient revenue from operations to meet the Company’s anticipated cash requirements through March 31, 2015 based on its present plan of operations.  Accordingly, the Company will seek additional funds, which is anticipated to be in the form of convertible debt and/or equity.  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, 2013 contains an explanatory paragraph referring to a substantial doubt concerning the Company’s ability to continue as a going concern.
 
 
7

 

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 believe 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 an unlimited amount through December 31, 2012 and a maximum of $250,000, thereafter.
 
Intangible Assets
 
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 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. For options with graded vesting, the Company values the stock option grants and recognizes compensation expense as if each vesting portion of the award was a separate award. The impact of forfeitures that may occur prior to vesting is also estimated and considered in the amount of expense recognized. 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. The Company considers estimated future taxable income or loss and other available evidence when assessing the need for its deferred tax valuation allowance.

 
8

 
 
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.
 
Research and development
 
All research and development activities, including any preclinical and clinical studies and product development activities, are outsourced (see Note I).  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.
 
Reclassification:

Certain reclassifications have been made to prior year balances to conform to the current year’s presentation.

C) 
Inventory

All inventories relate to the SyntheMed business and consist of the following:
 
   
March 31,
2014
   
December 31,
2013
 
                 
Raw materials
 
$
13,000
   
$
13,000
 
Finished goods
   
-
     
-
 
   
$
13,000
   
13,000
 
Slow moving and obsolete inventories
   
(13,000
)
   
(13,000
)
   
$
0
   
$
0
 
 
 
9

 
 
D)
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, 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.”
     
From time to time since February 2012, the Company borrowed from investors an aggregate of $4,030,000 principal amount pursuant to promissory notes bearing interest at 6% per annum, all of which remained outstanding as of March 31, 2014. Of such amounts, $100,000 was invested by Mr. Joerg Gruber and $2,365,000 was invested by Breisgau Bio Ventures SA.   Principal and interest are due and payable on the first anniversary of issuance.  None of the holders whose notes have matured, aggregating $2,270,000 in principal amount as of March 31, 2014 have requested payment.   At any time prior to completion or termination of the Capital Raise, the holder may elect to convert the principal amount of its promissory notes, and/or accrued interest thereon, into shares of the Company’s common stock in the Capital Raise at the subscription price thereof. 
 
[2]   Insurance Notes Payable:
 
In September 2013, the Company entered into a short term financing agreement for our directors’ and officers’ liability insurance premium totaling $75,100 and payable in monthly installments including interest of $7,600. The monthly installments are due through July 2014 and carry an interest rate of 2.94% per annum.

In March 2013, 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 2013.
 
 
10

 

E) 
Net Loss Per Common Share

Basic and diluted net loss per common share is computed using the weighted average number of shares outstanding at March 31, 2014 and excludes 26,678,000 common shares potentially issuable upon the exercise of outstanding options and warrants since their inclusion would have been anti-dilutive.
       
F) 
Capital Transaction
 
[1]   Stock based compensation:
 
At March 31, 2014, 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 March 31, 2014, there were 5,286,000 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 three month periods ended March 31, 2014 and 2013, respectively.

The following summarizes the activities of the Company’s stock options for the three months ended March 31, 2014 (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, 2014
   
20,402
   
$
0.13
   
2.4 Years
       
Cancelled, expired or forfeited
   
-
     
-
             
Granted
   
-
     
-
     
-
       
Outstanding at March 31, 2014
   
20,402
   
$
0.13
   
2.1 Years
   
$
0
 
Exercisable at March 31, 2014
   
20,052
   
$
0.13
   
2.0 Years
         
                                 
Expected to vest after March 31, 2014
   
20,302
   
$
0.13
   
2.1 Years
   
$
0
 

As of March 31, 2014, there was approximately $1,000 of unrecognized stock compensation related to unvested awards (net of estimated forfeitures) expected to be recognized over the next 6 months.  
 
The Company has recorded a charge of $1,000 in general and administrative expense for the three months ended March 31, 2014 for the pro-rata share of the fair value of the unvested options granted during September 2011 that vest through September 2014. 
 
At March 31, 2014, 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.
 
 
11

 
 
[2]   Warrants:
 
As of March 31, 2014, the following warrants were outstanding to purchase up to 6,276,306 shares of the Company’s Common Stock:  

6,276,306
 
exercisable at $0.055 per share which expire on September 30, 2016
     
6,276,306
   
 
G) 
Income Taxes

At March 31, 2014 and December 31, 2013, 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 will be the value of the equity times the prescribed federal rate at September 30, 2011 of 3.86%.
 
As of March 31, 2014, the Company has not recorded any provisions for accrued interest and penalties related to uncertain tax positions.
 
By statute, tax years 2010 through 2013 remain open to examination by the major taxing jurisdictions to which the Company is subject.
 
H) 
Nature of Business

The Company’s revenue from the sale of REPEL-CV for the periods ended March 31, 2014 and 2013 was as follows:
 
Geographic Information
           
   
Three
Months Ended
March 31,
 
   
2014
 
2013
 
 
Revenues
 
         
United States
 
$
-
   
$
-
 
Russia
   
-
     
9,000
 
Pakistan
   
-
     
3,000
 
Hong Kong
   
-
     
6,000
 
Czech Republic
   
-
     
10,000
 
                 
   
$
-
   
$
28,000
 
  
All of the Company’s Long-Lived Assets are located in the United States of America.
 
 
12

 
 
I) 
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 April 2013, the parties extended the research period for an additional twelve-month period through March 2014 at a cost of approximately GBP 205,000 (approximately $341,000 based on exchange rates in effect on March 31, 2014), payable by the Company over the course of the twelve months. Under the extended agreement, the Company agreed to pay the remaining outstanding balance owed of $141,000 through March, 2014. The Company is currently negotiating an additional twelve-month extension through March 2015 at a cost of approximately $627,000 for the year.  Under these agreements, the Company recorded an expense for the three month period ended March 31, 2014 of $89,000, compared to $160,000 for the corresponding prior year period.
 
[2]   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.
 
[3]    diZerega Agreement:
 
The Company is party to an agreement relating to the Polymer Technology with Gere S. diZerega, M.D. whereby the Company is obligated to pay Dr. diZerega a royalty of one percent of all net sales of covered products in any and all countries. The agreement continues until the end of fifteen years from the date of the first commercial sale of such covered product in that country.
 
[4]   Employment Agreement
 
At March 31, 2014, the Company had an employment agreement with one individual that is scheduled to expire in September 2014, 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 $29,000 at March 31, 2014.  Effective January 1, 2014, the Company’s annual salary obligation is $114,000.
 
 
13

 
 
J) 
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 $10,000. Mr. Gruber, the Company’s Chairman, is Chairman and a director of Clubb Capital Limited, the placement agent for the Capital Raise. Each of our directors, other than Dr. Franklin, is entitled to receive, as full compensation for service as a director, including service on any committee of the Board of Directors, annual cash compensation, paid quarterly in arrears, of $25,000.
 
At March 31, 2014, the Company had borrowed an additional $2,365,000 principal amount from Breisgau BioVentures SA. See Note D[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 beneficially owns 9.5% of the outstanding shares of common stock 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 March 31, 2014, Dr. Shiels and Dr. Davies beneficially owned 5.7% and 3.8%, respectively, of the outstanding shares of common stock of the Company.
 
K) 
Subsequent Events
 
Subsequent to March 31, 2014, the Company borrowed an additional aggregate principal amount of $100,000 from an investor on the same terms as amounts borrowed during the quarter then ended. See Note D[1].
        
 
14

 
  

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, 2013 filed with the Securities and Exchange Commission on March 31, 2014 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.
 
 
15

 
 
General

We are a development stage regenerative medicine company seeking to develop novel cell-derived and related 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 and are concentrating on renal disease and diabetes.
 
Our development activities with respect to cell-derived and related 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.
 
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, the Company curtailed substantially all of the operations of the business and does not anticipate devoting any further resources to the business except as minimally necessary to maintain value pending a sale or other strategic transaction.
 
Merger with Pathfinder, LLC
 
On September 2, 2011, we completed a reverse merger, business combination with Pathfinder, LLC, which began operations in November 2008. Pathfinder, LLC was deemed 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.  
 
 
16

 
 
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, 2013. Actual results may differ from these estimates.
 
Results of Operations
 
We had no revenue for the three months ended March 31, 2014, compared to revenue of $28,000 for the corresponding prior year period. All of the revenues were attributable to REPEL-CV product sales. As a result of limited sales and increased operating costs associated with REPEL-CV and our focus on research and development, we have curtailed substantially all of the operations of the REPEL-CV business.  As a result, we do not anticipate future revenue from REPEL-CV sales. Pathfinder, LLC has not generated any revenue since inception.

We had no cost of goods sold for the three months ended March 31, 2014, compared to $12,000 for the corresponding prior year period. 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 $118,000 for the three months ended March 31, 2014, compared to $228,000 for the corresponding prior year period, a decrease of 48.2% or $110,000. The decrease for the three month period is primarily attributable to decreased fees under the research agreement with the University of Glasgow of $72,000, decreases in spending on pre-clinical animal models of $26,000, and decreased expenses incurred for the legacy SyntheMed business of $12,000.
 
General and administrative expenses totaled $300,000 for the three months ended March 31, 2014, compared to $319,000 for the corresponding prior year period, a decrease of 6%, or $19,000.  The decrease is primarily attributable to decreases in professional fees of $45,000, consulting fees of $19,000 offset by an increase in insurance expense of $46,000.
 
We incurred sales and marketing expenses of $5,000 for the three months ended March 31, 2014, compared to $9,000 for the corresponding prior year period, a decrease of $4,000, for the three month period. The Company’s sales and marketing expenses are primarily related to the sale of REPEL-CV.
 
 
17

 
 
Interest expense totaled $62,000 for the three months ended March 31, 2014, compared to $41,000 for the corresponding prior year period, an increase of 51.7% or $21,000. The increase is primarily attributable to interest charges related to the short term convertible notes payable to investors.

Our net loss was $485,000 for the three months ended March 31, 2014, compared to $581,000 for the corresponding prior year period, a decrease of 16.5%, or $96,000. The decrease is primarily attributable to the factors mentioned above. We expect to incur losses for the foreseeable future.
 
Liquidity and Capital Resources

At March 31, 2014 we had cash of $66,000 and negative working capital of $5,070,000, compared to cash of $44,000 and negative working capital of $4,587,000 at December 31, 2013.  
 
Net cash used in operating activities was $286,000 for the three months ended March 31, 2014, compared to $286,000 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 $485,000, offset by an increase in accrued expenses of $165,000 and a decrease in prepaid expenses of $34,000. Net cash used in operating activities for the prior year was comprised of a net loss of $581,000, combined with increases in accounts payable and accrued expenses totaling $233,000, decreases in accounts receivable, prepaid expenses and inventory totaling $52,000 and the impact of $10,000 in non-cash charges. 

Net cash provided by financing activities for the three months ended March 31, 2014 was $308,000, compared to $280,000 for the corresponding prior year period.  The current year amount was comprised of $330,000 of proceeds from short term notes payable, offset by $22,000 in payments of insurance notes payable for the financing of our directors’ and officers’ insurance premiums. The prior year amount was comprised of $305,000 of proceeds from short term notes payable, offset by $25,000 in payments of insurance notes payable for the financing of our product liability insurance premiums and our directors’ and officers’ insurance premiums.   

 
18

 
 
At the time of the Merger in September 2011, we raised $4,146,000 in equity capital, $1,375,000 of which was paid in cash and the balance by conversion of debt. Since February 2012 and through March 31, 2014, we have borrowed from investors an aggregate principal amount of $4,030,000, much of which has been provided on a monthly, as needed basis by our principal stockholder and all of which remains outstanding. An additional $100,000 was borrowed in April 2014. 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. None of the holders whose notes have matured, aggregating $2,270,000 in principal amount as of March 31, 2014, have requested payment. 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 at $.05 per share, reflecting the price paid in the capital raise at the time of the Merger, at any time prior to completion or termination of that capital raise.
 
The cash balance as of March 31, 2014 and the subsequent borrowings in April 2014 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 anticipate additional financing to be in the form of convertible debt and/or equity; though we cannot assure investors that we will be successful in raising funds as and when needed on acceptable terms or at all.

During the next 12 months, we anticipate spending approximately $1 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 may be unable to continue as a going concern.
  
Our principal contractual obligations, which include the obligations of our wholly-owned subsidiary, Pathfinder, LLC, include a commitment to fund approximately $57,000 in research and development activities through the University of Glasgow through March 2014 (which we anticipate renewing through March 2015 at a cost of approximately $627,000 for the year). In addition, at March 31, 2014, we had an employment agreement with one individual that is scheduled to expire in September 2014, 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 $29,000 at March 31, 2014.
 
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 2013 audited financial statements an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern.


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 March 31, 2014 that has materially affected,  or is reasonably likely to materially affect, our internal control over financial reporting.
 
 
19

 
 
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.

 
Item 6. 
 
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 month periods ended March 31, 2014 and 2013 and the cumulative period from November 4, 2008 (inception) to March 31, 2014; (ii) the Condensed Consolidated Balance Sheets at March 31, 2014 and December 31, 2013; (iii) the Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2014 and 2013 and the cumulative period from November 4, 2008 (inception) to March 31, 2014 and (iv) the Notes to the Condensed Consolidated Financial Statements, tagged as blocks of text.
 
 
20

 
 

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:   May 15, 2014
     
 
By:
/s/ John M. Benson
   
John M. Benson
   
CFO
   
Dated:   May 15, 2014
 
 
21