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 September 30, 2014

 

OR

 

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 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	Smaller reporting company  þ
		(Do not check if a smaller reporting company)

  

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 September 30, 2014

 

  

 

Pathfinder Cell Therapy, Inc.

 

INDEX

 

		Page
Part I - FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Statements of Operations (unaudited) for the three and nine-month periods ended September 30, 2014 and 2013	3
	Condensed Consolidated Balance Sheets as of September 30, 2014 (unaudited) and December 31, 2013	4
	Condensed Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the nine months ended September 30, 2014	5
	Condensed Consolidated Statements of Cash Flows (unaudited) for the nine-month period ended September 30, 2014 and 2013	6
	Notes to Condensed Consolidated Financial Statements (unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 4.	Controls and Procedures	19
Part II - OTHER INFORMATION
Item 6.	Exhibits	20
	Signature	21

 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS

 

PATHFINDER CELL THERAPY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(unaudited)

 

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2014				2013				2014				2013
Revenue
Product sales		$	0			$	8			$	0			$	54
Revenue			0				8				0				54
Cost of goods sold			0				4				0				24
Gross profit			0				4				0				30
Operating expenses:
Research and development			26				106				209				459
General and administrative			187				213				687				743
Sales and marketing			-				5				5				19
Impairment of intangible asset			-				-				-				161
Operating expenses			213				324				901				1,382
Loss from operations before other income / (expense)			(213	)			(320	)			(901	)			(1,352	)
Other income/(expense):
Interest (expense), net			(71	)			(52	)			(200	)			(141	)
Termination of license agreement			-				-				-				250
Other income/(expense)			(71	)			(52	)			(200	)			109
Net loss		$	(284	)		$	(372	)		$	(1,101	)		$	(1,243	)
Net loss per common share-basic and diluted		$	(0.00	)		$	(0.00	)		$	(0.00	)		$	(0.00	)
Weighted average shares outstanding			667,162				667,162				667,162				667,162

 

See accompanying notes to the condensed consolidated financial statements

 

 

PATHFINDER CELL THERAPY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

 

		September 30,				December 31,
		2014				2013
ASSETS
Current assets:
Cash		$	23			$	44
Prepaid expenses			14				75
Total current assets			37				119
Intangible, net of accumulated amortization			33				36
TOTAL		$	70			$	155
LIABILITIES AND CAPITAL DEFICIT
Current liabilities:
Accounts payable		$	188			$	190
Accrued expenses (including related party amount of $372 and $312, respectively)			728				527
Insurance note payable			-				45
Note payable - Clubb Capital			244				244
Convertible notes payable (including related party amount of $2,465 and $2,135, respectively)			4,560				3,700
Total current liabilities			5,720				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 and 667,162 at September 30, 2014 and December 31, 2013, respectively			667				667
Additional paid-in capital			11,830				11,828
Accumulated deficit			(18,147	)			(17,046	)
Total capital deficit			(5,650	)			(4,551	)
TOTAL		$	70			$	155

  

See accompanying notes to the condensed consolidated financial statements

 

 

PATHFINDER CELL THERAPY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY

NINE MONTHS ENDED SEPTEMBER 30, 2014

(In thousands, except per share data)

 

		Common Stock								Additional Paid-in				Accumulated
		Shares				Amount				Capital				Loss				Total
Balance, December 31, 2013			667,162				667				11,828				(17,046	)			(4,551	)
Stock-based Compensation			-				-				2				-				2
Net Loss			-				-				-				(1,101	)			(1,101	)
Balance, September 30, 2014			667,162				667				11,830				(18,147	)			(5,650	)

  

See accompanying notes to the condensed consolidated financial statements

 

 

PATHFINDER CELL THERAPY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)

 

		Nine Months ended
		September 30,
		2014				2013
Cash flows from operating activities:
Net loss		$	(1,101	)		$	(1,243	)
Adjustments to reconcile net loss to Net cash used in operating activities:
Depreciation and amortization			3				10
Stock based compensation relating to options			2				5
Goodwill / intangible impairment loss			-				161
Reversal of liability			-				(250	)
Accretion of long term liability			-				3
Changes in operating assets and liabilities:
Decrease in accounts receivable			-				20
Decrease  in inventory			-				21
Decrease in prepaid expenses			61				78
(Decrease) increase  in accounts payable			(2	)			115
Increase (decrease) in accrued expenses			201				(183	)
Net cash used in operating activities			(836	)			(1,263	)
Cash flows from financing activities:
Payments of insurance note payable			(45	)			(70	)
Proceeds from convertible notes payable			860				1,375
Net cash provided by  financing activities			815				1,305
Net (decrease) increase in cash			(21	)			42
Cash  at beginning of period			44				9
Cash  at end of period		$	23			$	51
Supplementary disclosure of non-cash investing and financing activities:
Financing of insurance premiums through notes payable		$	-			$	100

 

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, 2013 included in the Company’s Annual Report on Form 10-K.

 

The Company is a 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 September 30, 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 September 30, 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.

 

  

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

 

The Company deposits cash with high credit quality financial institutions and believes any amounts in excess of insurance limitations to be at minimal risk.  Cash held in these accounts are insured by the Federal Deposit Insurance Corporation up to a maximum of $250,000.

 

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.

 

 

Fair Value

 

The carrying amounts of cash, 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.

 

Recent Accounting Pronouncement:

 

During the quarter ended June 30, 2014, the Company adopted Accounting Standards Update (ASU) No. 2014-10, “Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation”, which was issued in June 2014. The ASU is effective for annual reporting periods beginning after December 15, 2014, (and interim periods therein) with early adoption allowed. The amendments in this ASU eliminate the concept of a development stage entity from GAAP and removes the related incremental financial reporting requirements. Accordingly, the Company is no longer presenting cumulative inception-to-date along with their current period amounts in its statements of operations and cash flows.

 

In August 2014, the FASB issued Accounting Standards Update No. 2014-15, "Presentation of Financial Statements-Going Concern" (ASU 2014-15), which establishes management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern in connection with preparing financial statements for each annual and interim reporting period. ASU 2014-15 also provides guidance to determine whether to disclose information about relevant conditions and events when there is substantial doubt about an entity’s ability to continue as a going concern. This update is effective for interim and annual reporting periods beginning after December 15, 2016; early adoption is permitted. We are currently evaluating the impact that this standard will have on our consolidated financial statements.  

 

C)

Inventory

 

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

 

		September 30, 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

 

 

D)	Notes Payable

 

[1]   Convertible Notes Payable:

 

From time to time since February 2012 and through September 30, 2014, the Company has borrowed from investors an aggregate of $4,560,000 principal amount pursuant to promissory notes bearing interest at 6% per annum, all of which remained outstanding as of September 30, 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 $3,340,000 in principal amount as of September 30, 2014, have requested payment.   At any time prior to completion or termination of the capital raise the initial closing of which occurred in connection with the reverse acquisition of our Company by Pathfinder, LLC in September 2011, 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.

 

[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 were paid through July 2014 and carried an interest rate of 2.94% per annum.

 

  

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 September 30, 2014 and excludes 24,248,000 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 September 30, 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 September 30, 2014, there were 7,623,000 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 nine month periods ended September 30, 2014 and 2013, respectively.

 

The following summarizes the activities of the Company’s stock options for the nine months ended September 30, 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			2,431				0.07
Granted			-				-				-
Outstanding at September 30, 2014			17,971			$	0.14				1.8 Years			$	0
Exercisable at September 30, 2014			17,871			$	0.14				1.8 Years
Vested and expected to vest at September 30, 2014			17,871			$	0.14				1.8 Years			$	0

 

As of September 30, 2014, all stock compensation related to outstanding awards has been recognized.

 

The Company has recorded a charge of $2,000 in general and administrative expense for the nine months ended September 30, 2014 for the pro-rata share of the fair value of the unvested options granted during September 2011 that vested through September 2014. 

 

At September 30, 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.

 

 

[2]   Warrants:

 

As of September 30, 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 September 30, 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.

 

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 September 30, 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 September 30, 2014 and 2013 was as follows: 

 

Geographic Information 

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2014				2013				2014				2013
		Revenues								Revenues
Russia		$	-			$	-			$	-			$	27,000
Hong Kong			-				-				-				6,000
Brazil			-				8,000				-				8,000
Pakistan			-				-				-				3,000
Czech Republic			-				-				-				10,000
		$	-			$	8,000			$	-			$	54,000

 

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

 

 

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 $332,000 based on exchange rates in effect on September 30, 2014). Following expiration of the research period in March 2014, the Company had been operating under a cost free extension to the research agreement through August 2014. The Company is currently evaluating the potential renewal and terms of future research to be conducted at the University. Under these agreements, the Company recorded an expense for the three and nine month periods ended September 30, 2014 of $0 and $91,000, compared to $83,000 and $330,000 for the corresponding prior year periods.

 

[2]   MGH Agreement

 

The Company had 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 was 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. During the quarter ended June 30, 2013, the Company determined that the licensed technology was no longer relevant to the development of Pathfinder’s products and terminated the license agreement. As a result, the Company recorded an impairment charge of $161,000 for the three and six month periods ended June 30, 2013. 

 

[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 legacy 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.

 

[4]   diZerega Agreement:

 

The Company is party to an agreement relating to the polymer technology related to the legacy SyntheMed business 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.

 

[5]   Employment Agreement

 

At September 30, 2014, the Company had an employment agreement with one individual that is scheduled to expire in September 2015, 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 September 30, 2014.  Effective January 1, 2014, the Company’s annual salary obligation is $114,000. 

 

  

J)	Related Party Transactions

 

Mr. Gruber, the Company’s Chairman, is Chairman and a director of Clubb Capital Limited, the placement agent for the capital raise referred to in Note D[1]. 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 September 30, 2014, the Company had borrowed an aggregate $2,365,000 principal amount from Breisgau BioVentures SA, a principal beneficial stockholder of the Company, and $100,000 from Mr. Gruber. 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, LLC under the terms of a license agreement between the university and Pathfinder, LLC.  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 September 30, 2014, the Company believes that 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 September 30, 2014, the Company borrowed an additional aggregate principal amount of $35,000 from an investor on the same terms as amounts borrowed during the quarter then ended. See Note D[1].

 

Effective October 2, 2014, the Company entered into a short term financing agreement for our directors’ and officers’ liability insurance premium totaling $57,500 and payable in monthly installments including interest of $5,000. The monthly installments are due through August 2015 and carry an interest rate of 3.72% per annum.

 

  

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, 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.

 

 

General

 

We are a 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 primarily limited to laboratory and preclinical testing. Our development plan calls for conducting additional preclinical safety and efficacy studies with respect to identified 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. Prior to the reverse acquisition of our Company in September 2011 by Pathfinder, LLC (the “Merger”), our business was focused on development and commercialization of REPEL-CV and other polymer based products for medical applications. We have since curtailed substantially all of the operations of that business and do not anticipate devoting any further resources to the business except as minimally necessary to maintain value pending a sale or other strategic transaction.

 

 

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.

 

Recent Accounting Pronouncements

 

During the quarter ended June 30, 2014, we adopted Accounting Standards Update (ASU) No. 2014-10, “Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation”, which was issued in June 2014. The ASU is effective for annual reporting periods beginning after December 15, 2014, (and interim periods therein) with early adoption allowed. The amendments in this ASU eliminate the concept of a development stage entity from GAAP and remove the related incremental financial reporting requirements. Accordingly, we are no longer presenting cumulative inception-to-date along with our current period amounts in our statements of operations and cash flows.

 

In August 2014, the FASB issued Accounting Standards Update No. 2014-15, "Presentation of Financial Statements-Going Concern" (ASU 2014-15), which establishes management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern in connection with preparing financial statements for each annual and interim reporting period. ASU 2014-15 also provides guidance to determine whether to disclose information about relevant conditions and events when there is substantial doubt about an entity’s ability to continue as a going concern. This update is effective for interim and annual reporting periods beginning after December 15, 2016; early adoption is permitted. We are currently evaluating the impact that this standard will have on our consolidated financial statements.  

 

There were various other updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on our consolidated financial position, results of operations or cash flows.

 

Results of Operations

 

We had no revenue for the three and nine months ended September 30, 2014, compared to revenue of $8,000 and $54,000, respectively, for the corresponding prior year periods. 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 and nine months ended September 30, 2014, compared to $4,000 and $24,000, respectively, for the corresponding prior year periods. 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 $26,000 and $209,000 for the three months and nine months ended September 30, 2014, respectively, compared to $106,000 and $459,000 for the comparable prior year periods, a decrease of 75.5% or $80,000 for the three month period and a decrease of 54.5% or $250,000 for the nine month period. The decrease for the three month period is primarily attributable to decreased fees under the research agreement with the University of Glasgow of $83,000 offset by an increase in spending on pre-GMP services for cell development and production for use in pre-clinical animal models of $3,000. The decrease for the nine month period is primarily attributable to decreased fees for the research conducted with the University of Glasgow of $239,000, decreases in spending on pre-clinical animal models of $33,000, and decreased expenses incurred for the legacy SyntheMed business of $12,000 offset by an increase in spending on pre-GMP services for cell development and production for use in pre-clinical animal models of $34,000. The reduction in University of Glasgow research fees is attributable to a cost-free extension provided by the University through August 2014 following expiration of our most recent annual funding commitment in March 2014.  We are currently evaluating the potential renewal and terms of future research to be conducted at the University.

 

General and administrative expenses totaled $187,000 and $687,000 for the three months and nine months ended September 30, 2014, respectively, compared to $213,000 and $743,000 for the comparable prior year periods, a decrease of 12.2% or $26,000 for the three month period and a decrease of 7.5% or $56,000 for the nine month period. The decrease for the three month period is primarily attributable to a decrease in professional fees of $8,000, decreased consulting fees of $7,000 and decreased insurance expense of $7,000. The decrease for the nine month period is primarily attributable to decreases in professional fees of $61,000 and consulting fees of $26,000 offset by an increase in insurance expense of $31,000.

 

We incurred sales and marketing expenses of $5,000 for the nine months ended September 30, 2014, compared to $19,000 for the comparable prior year period, a decrease of 73.7% or $14,000. The Company’s sales and marketing expenses are primarily related to the sale of REPEL-CV.

 

 

We recorded an impairment loss of $161,000 for the nine months ended September 30, 2013. This amount was attributable to the impairment of the MGH license which was terminated. An impairment analysis was performed and a determination made to record an impairment charge for the net amount of the recorded asset. There were no comparable amounts for the current year. See Note I [2] 

 

Interest expense totaled $71,000 and $200,000 for the three months and nine months ended September 30, 2014, respectively, compared to $52,000 and $141,000 for the comparable prior year periods, an increase of 36.5% or $19,000 for the three month period and an increase of 41.8% or $59,000 for the nine month period. The increase is primarily attributable to increased borrowings under short term convertible notes payable to investors.

 

We realized other income from the reversal of a liability of $250,000 for the nine months ended September 30, 2013. This liability was attributable to a long term payable for our estimated licensing fee obligations under the MGH license agreement which terminated upon cancellation of the of the MGH license agreement. There were no comparable amounts for the current year.

 

Our net loss was $284,000 and $1,101,000 for the three months and nine months ended September 30, 2014, respectively, compared to $372,000 and $1,243,000 for the comparable prior year periods, a decrease of 23.7%, or $88,000 for the three month period and a decrease of 11.4% or $142,000 for the nine month period. The changes are primarily attributable to the factors mentioned above. We expect to incur losses for the foreseeable future.

 

Liquidity and Capital Resources

 

At September 30, 2014 we had cash of $23,000 and negative working capital of $5,683,000, 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 $836,000 for the nine months ended September 30, 2014, compared to $1,263,000 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 $1,101,000, offset by an increase in accrued expenses of $201,000 and a decrease in prepaid expenses of $61,000. Net cash used in operating activities for the prior year was primarily comprised of a net loss of $1,243,000, combined with a decrease in accrued expenses of $183,000 and the impact of $71,000 in non-cash charges mainly comprised of the reversal of a $250,000 liability attributable to a long term payable for our estimated licensing fee obligations under the MGH license agreement which terminated upon cancellation of the MGH license agreement offset by $161,000 of impairment losses related to the impairment of the MGH license. These amounts were offset by decreases in accounts receivable, prepaid expenses and inventory totaling $119,000 plus an increase in accounts payable of $115,000. 

 

Net cash provided by financing activities for the nine months ended September 30, 2014 was $815,000, compared to $1,305,000 for the corresponding prior year period. The current year amount was comprised of $860,000 of proceeds from short term notes payable, offset by $45,000 in payments of insurance notes payable for the financing of our directors’ and officers’ insurance premiums. The prior year amount was comprised of $1,375,000 of proceeds from short term notes payable, offset by $70,000 in payments of insurance notes payable for the financing of our product liability insurance premiums and our directors’ and officers’ insurance premiums.

 

 

Since February 2012 and through September 30, 2014, we have borrowed from investors an aggregate principal amount of $4,560,000, much of which has been provided on a monthly, as needed basis by our principal stockholder and all of which remains outstanding. An additional $35,000 was borrowed in October 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 $3,340,000 in principal amount as of September 30, 2014, have requested payment. 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 a capital raise the initial closing of which occurred at the time of the Merger, at any time prior to completion or termination of that capital raise.

 

The cash balance as of September 30, 2014 and the subsequent borrowings in October 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 $500 thousand 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 include an employment agreement with one individual that is scheduled to expire in September 2015, 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 September 30, 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. 

 

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 September 30, 2014 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	Form of Promissory Notes issued by Registrant in favor of investors since February 2012 aggregating $4,595,000 in principal amount through October 24, 2014, including schedule of investors.
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 nine month periods ended September 30, 2014 and 2013; (ii) the Condensed Consolidated Balance Sheets at September 30, 2014 and December 31, 2012; (iii) the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 and 2013 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:   November 14, 2014
	By:	/s/ John M. Benson
		John M. Benson
		CFO
		Dated:   November 14, 2014

 

 

 

 

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