Pathfinder Cell Therapy, Inc. - FORM 10-Q

Attached files

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EX-32.1 - CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO 18 U.S.C.1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002. - Pathfinder Cell Therapy, Inc.	f10q0913ex32i_pathfinder.htm
EX-10.1 - FORM OF PROMISSORY NOTES ISSUED BY REGISTRANT IN FAVOR OF INVESTORS DURING 2012 AND 2013 AGGREGATING $3,475,000 IN PRINCIPAL AMOUNT THROUGH OCTOBER 31, 2013, INCLUDING SCHEDULE OF INVESTORS. - Pathfinder Cell Therapy, Inc.	f10q0913ex10i_pathfinder.htm
EX-32.2 - CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO 18 U.S.C.1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002. - Pathfinder Cell Therapy, Inc.	f10q0913ex32ii_pathfinder.htm
EX-31.2 - CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO EXCHANGE ACT RULE 13A-14(A), AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002. - Pathfinder Cell Therapy, Inc.	f10q0913ex31ii_pathfinder.htm
EXCEL - IDEA: XBRL DOCUMENT - Pathfinder Cell Therapy, Inc.	Financial_Report.xls
EX-31.1 - CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO EXCHANGE ACT RULE 13A-14(A), AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002. - Pathfinder Cell Therapy, Inc.	f10q0913ex31i_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 September 30, 2013

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,		02138
Massachusetts		(Zip Code)
(Address of principal executive offices)

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

(617) 245-0289

(Issuer’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

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

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o

(Do not check if a smaller reporting company)

Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes o No þ

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

Common Stock, $.001 Par Value – 667,160,870 shares outstanding at September 30, 2013

Pathfinder Cell Therapy, Inc.

INDEX

		Page
Part I - FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Statements of Operations (unaudited) for the three-month and nine-month periods ended September 30, 2013 and 2012 and for the period November 4, 2008 (Inception) through September 30, 2013	3

	Condensed Consolidated Balance Sheets as of September 30, 2013 (unaudited) and December 31, 2012	4

	Condensed Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the period November 4, 2008 (Inception) through September 30, 2013	5

	Condensed Consolidated Statements of Cash Flows (unaudited) for the nine-month periods ended September 30, 2013 and 2012 and for the period November 4, 2008 (Inception) through September 30, 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.

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(unaudited)

	Three Months Ended						Nine Months Ended						November 4,2008 (Inception) Through
	September 30,						September 30,						September 30,
	2013			2012			2013			2012			2013
Revenue
Product sales	$	8		$	20		$	54		$	83		$	241
Revenue		8			20			54			83			241

Cost of goods sold		4			8			24			34			100

Gross profit		4			12			30			49			141

Operating expenses:
Research and development		187			301			724			988			4,897
General and administrative		132			125			478			621			3,457
Sales and marketing		5			6			19			19			74
Impairment of intangible asset		-			-			161			-			8,288
Operating expenses		324			432			1,382			1,628			16,716

Loss from operations before other income / (expense)		(320	)		(420	)		(1,352	)		(1,579	)		(16,575	)

Other income/(expense):
Interest (expense), net		(52	)		(28	)		(141	)		(60	)		(383	)
Termination of license agreement		-			-			250			-			374
Other income/(expense)		(52	)		(28	)		109			(60	)		(9	)

Loss before income tax benefit		(372	)		(448	)		(1,243	)		(1,639	)		(16,584	)
Income tax benefit		-			-			-			-			-

Net loss	$	(372	)	$	(448	)	$	(1,243	)	$	(1,639	)	$	(16,584	)

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

Weighted average shares outstanding		667,162			667,161			667,162			667,161

See accompanying notes to the condensed consolidated financial statements

PATHFINDER CELL THERAPY, INC.

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

	September 30,			December 31,
	2013			2012
ASSETS	(unaudited)

Current assets:
Cash	$	51		$	9
Accounts receivable		8			28
Inventory		12			33
Prepaid expenses		100			78
Total current assets		171			148
Intangible, net of accumulated amortization		37			208
Machinery, equipment and software, less accumulated depreciation		-			-
TOTAL	$	208		$	356

LIABILITIES AND CAPITAL DEFICIT

Current liabilities:
Accounts payable	$	191		$	76
Accrued expenses (including related party amount of $220,000 and $370,000, respectively)		447			630
Current portion of long term payable		-			15
Insurance note payable		75			45
Note payable - Clubb Capital		244			244
Convertible notes payable (including related party amount of $1,775 and $700, respectively)		3,340			1,965
Total current liabilities		4,297			2,975

Long term payable - net of current portion		-			232

Commitments and other matters (Note K)

Capital deficit:
Preferred stock, $.01 par value; shares authorized - 5,000; issued and outstanding - none
Common stock, $.001 par value; shares authorized - 1,000,000 issued and outstanding - 667,162 at September 30, 2013 and December 31, 2012		667			667
Additional paid-in capital		11,828			11,823
Accumulated deficit		(16,584	)		(15,341	)
Total capital deficit		(4,089	)		(2,851	)
TOTAL	$	208		$	356

See accompanying notes to the condensed consolidated financial statements

PATHFINDER CELL THERAPY, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
NOVEMBER 4, 2008 (INCEPTION) THROUGH SEPTEMBER 30, 2013
(In thousands)

	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		-		-		-			(1,243	)		(1,243	)

Balance, September 30, 2013		667,162		667		11,828			(16,584	)		(4,089	)

* 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

PATHFINDER CELL THERAPY, INC.

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)

	Nine Months ended						November 4, 2008 (Inception) Through
	September 30,						September 30,
	2013			2012			2013
Cash flows from operating activities:

Net loss	$	(1,243	)	$	(1,639	)	$	(16,584	)
Adjustments to reconcile net loss to
Net cash used in operating activities:
Depreciation and amortization		10			15			81
Stock based compensation relating to options		5			10			544
Shareholder contribution -3% merger fee due to MGH		-			-			687
Goodwill / intangible impairment loss		161			-			8,288
Reversal of liability		(250	)		-			(374	)
Accretion of long term liability		3						20

Changes in operating assets and liabilities:
Decrease in accounts receivable		20			43			93
Decrease (increase) in inventory		21			1			64
Decrease in prepaid expenses		78			116			258
Increase (decrease) in accounts payable		115			(22	)		188
(Decrease) increase in accrued expenses		(183	)		28			(42	)
Net cash used in operating activities		(1,263	)		(1,448	)		(6,777	)

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		(70	)		(98	)		(260	)
Proceeds from convertible notes payable		1,375			1,365			6,317
Contributions from Pathfinder, LLC members		-			-			737
Net cash provided by financing activities		1,305			1,267			8,077

Net (decrease) increase in cash		42			(181	)		51
Cash at beginning of period		9			196			-
Cash at end of period	$	51		$	15		$	51


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		100			99			335
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 Notes to 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, 2012 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 September 30, 2013, 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, 2014 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, 2012 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, useful lives of intangible assets, valuation of stock-based compensation and income taxes, that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

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

Intangible Assets

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

During the quarter ended June 30, 2013, the Company determined that the technology licensed from MGH was no longer relevant to the development of Pathfinder’s products and terminated the MGH license agreement, impairing the entire carrying amount of this intangible asset. As a result, the Company recorded an impairment charge of $161,000 for the nine month period ended September 30, 2013.

Impairment of Long-Lived Assets

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

Stock based compensation

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

Income taxes

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

Fair Value

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

Research and development

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

Patent costs

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

Comprehensive Income (Loss)

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

C) Inventory

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

	September 30, 2013		December 31, 2012

Raw materials	$	12,000	$	12,000
Finished goods		-		21,000
	$	12,000	$	33,000

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 $3,340,000 principal amount pursuant to promissory notes bearing interest at 6% per annum, all of which remained outstanding as of September 30, 2013. Of such amounts, $100,000 was invested by Mr. Joerg Gruber, the Company’s Chairman of the Board, and $1,675,000 was invested by Breisgau Bio Ventures SA., the Company’s principal stockholder. Principal and interest are due and payable on the first anniversary of issuance. None of the holders whose notes have matured, aggregating $1,365,000 in principal amount as of September 30, 2013, 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.

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

In September 2012, the Company entered into a short term financing agreement for our directors’ and officers’ liability insurance premium totaling $75,000 and payable in monthly installments including interest of $7,600. The monthly installments are due through July 2013 and carry an interest rate of 3.45% per annum.

E) Long-term payable

The Company has recorded a long term payable for its estimated licensing fee obligations under the MGH license agreement (See Note J[2]). The amounts recorded represent the projected future license fees payable based on the Company’s estimate of 2017 as the first year of commercial sale, discounted to the present value using the following assumptions: Net Present Value calculated as of the agreement’s effective date of April 13, 2009, using an estimated borrowing rate for the Company of 10%. If first commercial sale is not achieved by 2017, any additional license fees incurred under the agreement will continue to be capitalized and amortized over the remaining period in the term. During the period ended June 30, 2013, the Company determined that the technology licensed from MGH was no longer relevant to Pathfinder’s business and terminated the MGH license agreement. As a result, the Company has reversed the long term payable in the amount of $250,000. No additional amounts are due to be paid because of the termination of the license.

F) 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, 2013 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.

G) Capital Transaction

[1] Stock based compensation:

At September 30, 2013, 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, 2013, 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 nine month periods ended September 30, 2013 and 2012.

The following summarizes the activities of the Company’s stock options for the nine months ended September 30, 2013 (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, 2013		20,950	$	0.14	3.3 Years
Cancelled, expired or forfeited		548		0.35
Granted		-		-	-
Outstanding at September 30, 2013		20,402	$	0.13	2.6 Years	$	0
Exercisable at September 30, 2013		20,052	$	0.13	2.6 Years

Expected to vest after September 30, 2013		20,302	$	0.13	2.6 Years	$	0

As of September 30, 2013, there was approximately $2,000 of unrecognized stock compensation related to unvested awards (net of estimated forfeitures) expected to be recognized over the next 12 months.

The Company has recorded a charge of $5,000 in general and administrative expense for the nine months ended September 30, 2013 for the pro-rata share of the fair value of the unvested options granted during September 2011 that vest through September 2014.

At September 30, 2013, 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, 2013, 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

H) Income Taxes

At September 30, 2013 and December 31, 2012, the Company had a deferred tax asset which was fully reserved by a valuation allowance to reduce the deferred tax asset to the amount that is expected to be realized.

As a result of the Merger, the Company’s net operating losses and research and development credits will be subject to a limitation pursuant to Section 382. In general, the formula would be the value of the equity times the prescribed federal rate of 3.28%.

As of September 30, 2013, the Company has not recorded any provisions for accrued interest and penalties related to uncertain tax positions.

By statute, tax years 2009 through 2012 remain open to examination by the major taxing jurisdictions to which the Company is subject.

I) Nature of Business

The Company’s revenue from the sale of REPEL-CV for the periods ended September 30, 2013 and 2012 was as follows:

Geographic Information

	Three Months Ended September 30,					Nine Months Ended September 30,
	2013		2012			2013		2012
	Revenues					Revenues

United States	$	-		$	-	$	-		$	13,000
Russia		-			3,000		27,000			16,000
Columbia		-			-		-			14,000
Hong Kong		-			10,000		6,000			28,000
Brazil		8,000			-		8,000			-
Italy		-			2,000		-			2,000
Pakistan		-			-		3,000			-
Czech Republic		-			5,000		10,000			10,000

	$	8,000		$	20,000	$	54,000		$	83,000

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

J) Commitments and Other Matters

[1] University of Glasgow Agreement

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

In 2009, the Company entered into a research agreement with the University of Glasgow, whereby the University conducts research on behalf of the Company relating to the technology licensed by the Company from the University. The agreement has been extended for annual periods. In April 2012, the parties extended the research period for a twelve-month period ended March 2013 at a cost of approximately GBP 432,000 (approximately $700,000 based on exchange rates in effect on September 30, 2013), payable by the Company over the course of the twelve months. In April 2013, the parties extended the research period for an additional twelve-month period at a cost of approximately GBP 205,000 (approximately $332,000 based on exchange rates in effect on September 30, 2013), payable by the Company over the course of the twelve months. Under these agreements, the Company recorded an expense for the three and nine month periods ended September 30, 2013 of $83,000 and $330,000, compared to $179,000 and $510,000 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 nine month periods ended September 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 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 SyntheMed 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.

[5] Employment Agreement

At September 30, 2013, 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 $28,000 at September 30, 2013. Effective January 1, 2013, the Company’s annual salary obligation is $113,000.

K) 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, which amount reflects a reduction, effective August, 2012, from the previous $15,000 per month consulting fee. Mr. Gruber, the Company’s Chairman, is Chairman and a director of Clubb Capital Limited, the placement agent for the Capital Raise. Effective on the merger with Pathfinder, LLC in September 2011 , each of our directors, other than Dr. Franklin and Mr. Gruber, was 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 $20,000. Effective beginning the fourth quarter, 2012, we changed our director compensation policy to provide for compensation to Mr. Gruber on the same basis as other non-executive directors.

Between September 2010 and March 2011, Pathfinder, LLC borrowed an aggregate principal amount of $1,357,000 from Breisgau BioVentures SA, an owner of 52.5% of the outstanding membership interests of Pathfinder, LLC prior to the Merger. Breisgau subsequently converted such principal amount into shares of the Company’s common stock in the Capital Raise. At September 30, 2013, the Company had borrowed an additional $1,675,000 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 September 30, 2013, Dr. Shiels and Dr. Davies beneficially owned 5.7% and 3.8%, respectively, of the outstanding shares of common stock of the Company.

N) Subsequent Events

Subsequent to September 30, 2013, the Company borrowed an additional aggregate principal amount of $135,000 from Breisgau BioVentures SA on the same terms as amounts borrowed during the quarter then ended. See Note D[1].

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

Certain statements in this Report under this Item 2 and elsewhere constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “anticipates”, “plans”, “intends” and “expects” and similar expressions are intended to identify such forward-looking statements. Forward-looking statements include, without limitation, statements regarding management’s plans, strategy and objectives for future operations, future cash requirements and liquidity sources, the timing or success of any pre-clinical or proposed clinical trial, the timing or ability to achieve necessary regulatory approval, our plans or ability to successfully commercialize any future product candidates or enter into arrangements with third parties to assist with any product development, manufacture or marketing activities and factors associated with the market for any future product candidate. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of our Company, or industry results, to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. Such risks and uncertainties include but are not limited to (i) risks associated with the success of the Company’s early stage research programs, (ii) risks associated with regulatory approvals including uncertainties regarding the nature and scope of required clinical studies and the success of those studies, (iii) potential inability to secure funding as and when needed and (iv) product development, technology, manufacturing, marketing and competition risks associated with developing and commercializing therapies based on our technology. Reference is made to our annual report on Form 10-K for the year ended December 31, 2012 filed with the Securities and Exchange Commission on April 1, 2013 for a more extensive description of these and other risks and uncertainties. These forward-looking statements speak only as of the date hereof. We undertake no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

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

General

We are a development stage regenerative medicine company seeking to develop novel cell-based 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.

Our development activities with respect to cell-based 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.

In addition to our cell therapy business, we also continue the business conducted by our company prior to the Merger, which we refer to as the “SyntheMed business.” Through the SyntheMed business we sell REPEL-CV® Bioresorbable Adhesion Barrier, a bioresorbable adhesion barrier film for use in cardiac surgeries. We obtained US Food and Drug Administration (“FDA”) marketing clearance for REPEL-CV in March 2009 and CE Mark approval in August 2006. In the United States and some foreign countries, REPEL-CV’s marketing approval is limited to the pediatric market, while the CE Mark approval, which covers the European Union (EU) and other countries, as well as other foreign approvals subsequently obtained, apply broadly to both the adult and pediatric market segments.

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

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, 2012. Actual results may differ from these estimates.

Results of Operations

Revenue for the three and nine months ended September 30, 2013 was $8,000 and $54,000, respectively, compared to $20,000 and $83,000 for the comparable prior year periods, representing decreases of 60% or $12,000 for the three month period and 35% or $29,000 for the nine month period. All of the sales were attributable to REPEL-CV product sales. The decreases in the current year are primarily attributable to the lack of sales efforts due to our continued focus on research and development.

Cost of goods sold for the three and nine months ended September 30, 2013 was $4,000 and $24,000, respectively, compared to $8,000 and $34,000 for the comparable prior year periods, representing decreases of 50% or $4,000 for the three month period and 29.4% or $10,000 for the nine month 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 $187,000 and $724,000 for the three months and nine months ended September 30, 2013, respectively, compared to $301,000 and $988,000 for the comparable prior year periods, a decrease of 37.9% or $114,000 for the three month period and a decrease of 26.7% or $264,000 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 $97,000 and decreases in spending on pre-clinical animal models of $57,000 offset by increased legal fees of $44,000. The decrease for the nine month period is primarily attributable to decreased fees under the research agreement with the University of Glasgow of $180,000, decreases in spending on pre-clinical animal models of $88,000, and decreased expenses incurred for the legacy SyntheMed business of $46,000 offset by increased legal fees of $56,000.

General and administrative expenses totaled $132,000 and $478,000 for the three months and nine months ended September 30, 2013, respectively, compared to $125,000 and $621,000 for the comparable prior year periods, an increase of 5.6% or $7,000 for the three month period and a decrease of 23% or $143,000 for the nine month period. The increase for the three month period is primarily attributable to increases in professional fees of $6,000. The decrease for the nine month period is primarily attributable to decreases in professional fees of $56,000, consulting fees of $35,000, investor relations related expense of $17,000 and insurance expense of $36,000.

We incurred sales and marketing expenses of $5,000 and $19,000 for the three months and nine months ended September 30, 2013, respectively, compared to $6,000 and $19,000 for the comparable prior year periods, representing a decrease of 16.7% or $1,000 for the three month period. 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 2012. See Note J [2].

Interest expense totaled $52,000 and $141,000 for the three months and nine months ended September 30, 2013, respectively, compared to $28,000 and $60,000 for the comparable prior year periods. The increases are primarily attributable to higher balances on 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 prior year.

Our net loss was $372,000 and $1,243,000 for the three months and nine months ended September 30, 2013, respectively, compared to $448,000 and $1,639,000 for the comparable prior year periods, a decrease of 17.0% or $76,000 for the three month period and a decrease of 24.2% or $396,000 for the nine month period. The decrease is primarily attributable to the factors mentioned above. We expect to incur losses for the foreseeable future.

Liquidity and Capital Resources

At September 30, 2013 we had cash of $51,000 and negative working capital of $4,126,000, compared to cash of $9,000 and negative working capital of $2,827,000 at December 31, 2012.

Net cash used in operating activities was $1,263,000 for the nine months ended September 30, 2013, compared to $1,448,000 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 $1,243,000, 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 used in operating activities for the prior year period was primarily comprised of a net loss of $1,639,000, combined with an increase in accrued expenses of $28,000, decreases in accounts receivable and inventory totaling $44,000 and the impact of $25,000 in non-cash charges, offset by a decrease in accounts payable of $22,000.

Net cash provided by financing activities for the nine months ended September 30, 2013 was $1,305,000, compared to $1,267,000 for the corresponding prior year period. The current 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. The prior year amount was comprised of $1,365,000 of proceeds from short term notes payable, offset by $98,000 in payments of insurance notes payable for the financing of our product liability insurance premiums and our directors’ and officers’ insurance premiums.

Recent Financings

Since February 2012 and through September 30, 2013, we have borrowed from investors an aggregate principal amount of $3,340,000. An additional $135,000 was borrowed in October 2013. 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 $1,365,000 in principal amount as of September 30, 2013, have requested payment. At any time prior to completion or termination of the private placement of our common stock (the “Capital Raise”) the initial closing of which occurred at the time of the Merger at a purchase price of $.05 per share, the holders may elect to convert the principal amount of the promissory notes, and/or accrued interest thereon, into shares of our common stock in the Capital Raise at the subscription price thereof.

The cash balance as of September 30, 2013 and the subsequent borrowings in October 2013 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 $221,000 in research and development activities through the University of Glasgow through March 2014. In addition, at September 30, 2013, 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 $28,000 at September 30, 2013.

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 2012 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, 2013 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 3. Defaults Upon Senior Securities.

As of September 30, 2013, $1,365,000 in aggregate principal amount of outstanding promissory notes has matured and become due and payable, $150,000 of which became due and payable during the quarter. The notes, which are convertible at the holders’ election into our common stock in the Capital Raise, were issued to investors at various times during the first half of 2012 with a term of one year. As of the date of this report, we have not paid the notes and the investors have neither demanded payment nor converted the notes.

Item 6. Exhibits.

10.1	Form of Promissory Notes issued by Registrant in favor of investors during 2012 and 2013 aggregating $3,475,000 in principal amount through October 31, 2013, 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, 2013 and 2012 and the cumulative period from November 4, 2008 (inception) to September 30, 2013; (ii) the Condensed Consolidated Balance Sheets at September 30, 2013 and December 31, 2012; (iii) the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2013 and 2012 and the cumulative period from November 4, 2008 (inception) to September 30, 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, 2013

	By:	/s/ John M. Benson
		John M. Benson
		CFO
		Dated: November 14, 2013

Pathfinder Cell Therapy, Inc. - FORM 10-Q - November 14, 2013

Attached files

Pathfinder Cell Therapy, Inc. Reports