PFND Pathfinder Cell Therapy Inc (CE)

 SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

 

(Mark One)

x  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934   For the fiscal year ended December 31, 2014

 

or

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934   For the transition period from                                          to                                             Commission file number:  0-20580

 

Pathfinder Cell Therapy, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware		14-1745197
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		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)

 

Securities registered under Section 12(b) of the Exchange Act:

NONE

 

Securities registered under Section 12(g) of the Exchange Act:

 

COMMON STOCK--PAR VALUE $.001 PER SHARE

(Title of class)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐  No ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐  No ☒

 

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 ☒  No ☐

 

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 ☒  No ☐

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

 

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). Check one:

 

Large accelerated filer  ¨     Accelerated Filer  ¨    Non-accelerated filer  ¨ (Do not check if a smaller reporting company) 

Smaller reporting company  ☒

 

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

 

The aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates of the registrant was approximately $1,425,000 based on the last reported sale price of the registrant’s common stock as of June 30, 2014.

 

At February 28, 2015, 667,160,870 shares of registrant’s Common Stock were outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE: None.

 

  

Pathfinder Cell Therapy, Inc.

Table of Contents

 

Part I	Item 1	Business	4
	Item 1A	Risk Factors	13
	Item 1B	Unresolved Staff Comments	28
	Item 2	Properties	28
	Item 3	Legal Proceedings	28
	Item 4	Mine Safety Disclosures	28
Part II	Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	28
	Item 6	Selected Financial Data	29
	Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
	Item 7A	Quantitative and Qualitative Disclosures About Market Risk	33
	Item 8	Financial Statements and Supplementary Data	33
	Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	34
	Item 9A	Controls and Procedures	34
	Item 9B	Other Information	35
Part III	Item 10	Directors, Executive Officers and Corporate Governance	35
	Item 11	Executive Compensation	38
	Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	41
	Item 13	Certain Relationships and Related Transactions, and Director Independence	43
	Item 14	Principal Accountant Fees and Services	44
Part IV	Item 15	Exhibits, Financial Statement Schedules	44
		Signatures	48

 

 

Forward-Looking Statements

 

Statements in this Report that are not statements of historical fact are “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 may be found, among other places, under the headings “Business,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These 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 early stage of the Company’s research programs, (ii) risks associated with regulatory approvals including uncertainties regarding the nature and scope of required preclinical studies and clinical trials and the success thereof, (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.  See Item 1A. for a description of these as well as other risks and uncertainties. These forward-looking statements speak only as of the date of this report or such earlier date to which the statement may expressly refer.  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.

 

 

PART I

 

Item 1.   Business.

 

Overview

 

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, peripheral vascular disease, and other diseases as potential indications for therapies based on our technology.

 

Our development activities with respect to cell-derived and related therapies have been limited to laboratory and preclinical testing. Our development plan calls for conducting additional preclinical safety and efficacy studies with respect to indentified and other potential indications.

 

 

OUR BUSINESS

 

Pathfinder Technology

 

Our technology derives from extensive research conducted at the University of Glasgow that identified what appears to be a newly-discovered type of mammalian cell with regenerative properties. We refer to these cells as “Pathfinder Cells” or “PCs.”  Pathfinder Cells have demonstrated a number of characteristics which we believe makes them well-suited for cell-based therapies.  These include:

 

●	Ability to stimulate regeneration of damaged tissue, without being incorporated into the new, healthy tissue;

 

●	PCs are found in a number of tissue types, including kidney, pancreas, liver and lymph nodes;

 

●

PCs appear to be able to stimulate repair of a range of damaged tissue, irrespective of the type of tissue from which they were derived.  For example, PCs isolated from both rat and human pancreas and human kidney have been shown to completely reverse diabetes induced in a mouse with the chemical streptozotocin (“STZ”). In addition, rat pancreas-derived PCs have been effective in animal models of renal reperfusion injury and myocardial infarction; and

 

●

PCs appear to be “immune privileged” in the sense that they can be taken from one individual, and administered to an immunologically different individual, without causing an immune response.  In fact, we have completed a number of animal experiments where the PCs are taken from one species and given to an entirely different species.

 

Pathfinder Cells are distinguishable from other cell types being developed by other companies for use in regenerative medicine.  Pathfinder Cells have surface markers and other characteristics different from other cells including, for example, mesenchymal stem cells.  Also, because Pathfinder Cells are not derived from embryos, they are distinct from embryonic stem cells, and are free from the political and ethical issues surrounding those cells.

 

Preclinical Studies

 

Pathfinder Cells and microvesicles derived from Pathfinder Cells have shown efficacy in animal models of diabetes, cardiac ischemia, and renal reperfusion injury. These models have tested PCs from both rat and human sources. The PCs have been isolated from both the pancreas and the kidney. In each of these models, the PCs and the microvesicles have been administered intravenously. These studies were performed at independent academic centers or contract research organizations, as described below.  None of the persons affiliated with our company were involved in the performance of these studies other than to review the protocols.

 

 

Diabetes

 

There are a number of standard animal models for diabetes. Each of these shares some properties with the actual human disease, but none are exactly the same. One of these models makes use of the chemical streptozotocin (STZ). The chemical specifically destroys the insulin producing cells in the pancreas of the animal. If a sufficiently high dose of STZ is used, essentially all of the insulin producing cells (beta cells) are destroyed, and the animal becomes severely diabetic. The blood glucose rises to a very high level. A collaboration was established between our researchers at the University of Glasgow and the laboratory of Dr. Anthony Dorling of the Department of Immunology, Imperial College of London. In the models utilized to test PCs, mice were made diabetic with high doses of STZ, and then, three days later, were either treated with PCs or with a placebo. Seven days later, a second dose of cells or placebo was given. All animals in the placebo group had sustained high levels of blood glucose, lost weight, and either died, or had to be sacrificed.  On the other hand, in those animals that received the PCs, the blood glucose began to decline, and in five or six weeks returned to normal levels, which were maintained for over three months, when the experiment was completed.  These results were the same when the PCs were of rat origin or from human tissue. Pathfinder intends to conduct further testing using additional models relating to diabetes. These results have been published in the peer reviewed journal Rejuvenation Research, April 2011.

 

Cardiac Ischemia

 

There are good animal models of cardiac ischemia, which are relevant to the treatment of myocardial infarction in humans. A collaboration was established between our researchers at the University of Glasgow and the laboratory of Dr. B. Metzler of the Division of Cardiology, Department of Internal Medicine, University Hospital of Innsbruck. This laboratory has an established model of cardiac infarct injury in which the left descending artery is ligatured during a surgical procedure, preventing blood supply to the left ventricle in particular.

 

The extent of the infarct damage is assessed by plasma cardiac troponin measurement. Cardiac function is determined before termination of the experiment at days 7 and 14 after ischemia, by in vivo measurement using ultrasound of systolic left ventricle size (smaller corresponds to better function – i.e. less muscle damage), and fractional shortening (the ratio of heart size when full with blood to heart size after emptying, which reflects how much the heart muscle needs to contract to eject a normal volume of blood), where increased fractional shortening corresponds to increased heart function (normal is 50%).

 

In the experiments involving PCs, cardiac ischemia was induced in mice, and the PCs were sourced from rat pancreatic tissue. The study was done in a blinded fashion, with animals getting either PCs or placebo. There was a significant improvement in the function of the heart, as measured by fractional shortening, in those animals receiving the cells compared to those which did not.

 

In addition to fractional shortening, which is a measure of heart function, cardiac tissue was analyzed for markers of cell damage. Again, there was a marked difference between the treated and untreated animals.

 

Renal Ischemia

 

A third animal model was performed using PCs. This involved a controlled damage of the kidney in mice. A collaboration was established with Dr. C. Koppelstaetter and colleagues of the Clinical Division of Nephrology, Innsbruck Medical University. This laboratory has an established model of renal ischemic reperfusion injury. This is a well accepted model with direct relevance to acute renal failure and decreased allograft survival in the context of kidney transplantation.

 

 

Kidney function is assessed in mice after the ischemic event by determination of serum creatinine levels and urinary protein to creatinine ratio (UPCR), with increased levels corresponding to the extent of tissue damage. As in the cardiac ischemia experiments, in addition to functional measurements, tissue analysis is done based on biological markers, which correspond to damage and senescence.

 

Once again, the treated animals showed both a functional improvement and a corresponding improvement based on the biological markers in the tissues. These results were published in the peer reviewed journal Rejuvenation Research, February 2013. 

 

Microvesicles derived from Pathfinder Cells

 

We have discovered that PCs produce smaller particles, referred to as microvesicles or MVs, and that these MVs appear to be active in the same way as the PCs from which they derive. We have completed models of diabetes, and renal ischemia showing that the MVs are effective in improving organ function. The MVs have a significant advantage over PCs in that they can be produced more easily. The development pathway for an MV-based product should be more straightforward than for a PC-based product. The Company is now exploring several specific product alternatives using MVs, that address indications related to renal injury and organ transplantation and diabetes.

 

Research and Development

 

Our core technology was originally derived from research conducted at the University of Glasgow.  Pathfinder has relied on the University of Glasgow as well as third party laboratories for its research and development activities, all of which has been funded by our company.  Intellectual property resulting from activities conducted at the University of Glasgow is owned by the university and licensed to us under the terms of a license agreement between the university and our company.  See “Licenses” below.  Intellectual property resulting from activities conducted on our behalf by third party laboratories is owned by us. Our research and development activities are focused on additional animal models of a variety of diseases, experiments to determine the mechanism of action of the Pathfinder Cells, and toxicology testing.  Once these preliminary pre-clinical programs have been completed, we expect to begin one or more clinical trials to test the use of Pathfinder Cells in humans.  During the years ended December 31, 2014 and 2013, we incurred $262,000 and $585,000 in expense on Company-sponsored research and development activities.

 

Manufacturing

 

We rely on third party outsourcing arrangements for production and storage of cells used in our laboratory and preclinical testing activities.  For clinical testing purposes, we intend to rely on third party outsourcing arrangements as well. Cells used in clinical studies must be produced in accordance with FDA requirements including current Good Manufacturing Practices and current Good Tissue Practices.  

 

Intellectual Property 

 

We have worldwide exclusive rights to US and foreign patent applications originated from two international application families and two US provisional patent applications under a license agreement with the University of Glasgow.  The two international application families contain composition of matter claims directed to Pathfinder Cells themselves, as well as claims directed to their use in cell therapies to treat diabetes. In 2012 we were granted our first European patent which provides intellectual property protection for our cell-based technology throughout this region. Of the US provisional applications, one relates to microvesicles and microRNA related to Pathfinder Cells and their use in treating damaged tissue and the second relates to the use of Pathfinder Cells in cell therapies to treat cardiac, renal and other diseases. We intend to convert the two provisionals into PCT or non-provisional US applications.  With the exception of the US provisional applications related to microvescicles, the patent applications licensed from the University of Glasgow comprise our core technology and are important to the development of Pathfinder Cells as well as to therapies based on those cells.  The application relating to microvesicles would become important if the microvescicles themselves show efficacy.   Any patent which may issue from a pending application will generally expire 20 years from the date of the earliest non-provisional patent application upon which it is based.

 

 

Licenses

 

Our wholly-owned subsidiary, Pathfinder, LLC, has a worldwide exclusive license for the technology relating to PCs from the University of Glasgow. Under the terms of the license, the University of Glasgow is entitled to receive royalties on sales of products making use of the PCs and related technology, and the Company agreed to endeavor to commercialize the licensed technology in accordance with an agreed upon development plan that is to be updated annually. Subject to earlier termination as provided therein, the license has a term of 15 years from the date of first commercial sale by the Company or its sublicensee of a covered product or such longer period as the licensed patent rights remain valid.

 

Competition

 

The development of therapeutic agents for human disease is intensely competitive. Major pharmaceutical companies currently offer a number of pharmaceutical products to treat diseases for which our technologies may be applicable. Many pharmaceutical and biotechnology companies are investigating new drugs and therapeutic approaches for the same purposes, which may achieve new efficacy profiles, extend the therapeutic window for such products, alter the prognosis of these diseases, or prevent their onset. We believe that any product candidates we choose to develop, when and if successfully developed, will compete with these products principally on the basis of improved and extended efficacy and safety and their overall economic benefit to the health care system. We expect competition to increase. We believe that our most significant competitors will be fully integrated pharmaceutical companies and more established biotechnology companies. Smaller companies may also be significant competitors, particularly through collaborative arrangements with large pharmaceutical or biotechnology companies.

 

Sales and Marketing

 

We may choose to partner with large biotechnology or pharmaceutical companies for sales and marketing, if and when applicable, or alternatively develop our own sales force to market our cell therapy products in the United States. An important factor in determining whether to invest building our own sales force will be the size of the sales force anticipated to be required to achieve meaningful market penetration, which in turn would depend in part on the concentration of the treatment market.

 

 

For overseas markets, we would consider partnering with large biotechnology and pharmaceutical companies, if and when applicable, to assist with marketing and sales of any cell therapy products we develop.

 

Government Regulation

 

Our research and development activities and the future manufacturing and marketing of our potential products are, and will be, subject to regulation for safety and efficacy by a number of governmental authorities in the United States and other countries.

 

In the United States, pharmaceuticals, biologicals and medical devices are subject to FDA regulation. The Federal Food, Drug and Cosmetic Act, as amended, and the Public Health Service Act, as amended, the regulations promulgated thereunder, and other federal and state statutes and regulations govern, among other things, the testing in human subjects, manufacture, safety, efficacy, labeling, storage, export, record keeping, approval, marketing, advertising and promotion of our potential products. Product development and approval within this regulatory framework takes a number of years and involves significant uncertainty combined with the expenditure of substantial resources.

 

FDA Approval Process

 

We will need to obtain FDA approval of any therapeutic product we plan to market and sell. The FDA will only grant marketing approval if it determines that a product is both safe and effective. The testing and approval process will require substantial time, effort and expense. The steps required before our products may be marketed in the United States include:

  

Preclinical Laboratory and Animal Tests. Preclinical tests include laboratory evaluation of the product candidate and animal studies in specific disease models to assess the potential safety and efficacy of the product candidate as well as the quality and consistency of the manufacturing process.

  

Submission to the FDA of an Investigational New Drug Application, or IND, which must become effective before U.S. human clinical trials may commence. The results of the preclinical tests are submitted to the FDA, and the IND becomes effective 30 days following its receipt by the FDA, as long as there are no questions, requests for delay or objections from the FDA. The sponsor of an IND must keep the FDA informed during the duration of clinical studies through required amendments and reports, including adverse event reports.

  

Adequate and Well-Controlled Human Clinical Trials to Establish the Safety and Efficacy of the Product Candidate.   Clinical trials, which test the safety and efficacy of the product candidate in humans, are conducted in accordance with protocols that detail the objectives of the studies, the parameters to be used to monitor safety and the efficacy criteria to be evaluated. Any product candidate administered in a U.S. clinical trial must be manufactured in accordance with cGMP.

  

The protocol for each clinical study must be approved by an independent Institutional Review Board, or IRB, at the institution at which the study is conducted, and the informed consent of all participants must be obtained. The IRB will consider, among other things, the existing information on the product candidate, ethical factors, the safety of human subjects, the potential benefits of the therapy and the possible liability of the institution.

  

Clinical development is traditionally conducted in three sequential phases, which may overlap:

  

●

In Phase I, product candidates are typically introduced into healthy human subjects or into selected patient populations (i.e., patients with a serious disease or condition under study, under physician supervision) to test for adverse reactions, dosage tolerance, absorption and distribution, metabolism, excretion and clinical pharmacology.

 

 

●

Phase II involves studies in a limited population of patients with the disease or condition under study to (i) determine the efficacy of the product candidates for specific targeted indications and populations, (ii) determine optimal dosage and dosage tolerance and (iii) identify possible and common adverse effects and safety risks. (Phase II may be divided into Phase IIa and Phase IIb studies to address these issues.) When a dose is chosen and a candidate product is found to have preliminary evidence of effectiveness, and to have an acceptable safety profile in Phase II evaluations, Phase III trials begin.

 

●

Phase III trials are undertaken to develop additional safety and efficacy information from an expanded patient population, generally at multiple study sites. The information obtained is used to develop a better understanding of the risks and benefits of the product candidate and to determine appropriate labeling for use.

 

Based on clinical trial progress and results, the FDA may request changes or may require discontinuance of the trials at any time if significant safety issues arise.

 

Submission to the FDA of Marketing Authorization Applications and FDA Review. The results of the preclinical studies and clinical studies are submitted to the FDA as part of marketing approval authorization applications such as New Drug Applications (NDAs) or Biologics License Applications (BLAs). The FDA will evaluate such applications for the demonstration of safety and effectiveness. A BLA is required for biological products subject to licensure under the Public Health Service Act and must show that the product is safe, pure and potent. In addition to preclinical and clinical data, the BLA must contain other elements such as manufacturing materials, stability data, samples and labeling. FDA approval of a BLA is required prior to commercial sale or shipment of a biologic. A BLA may only be approved once the FDA examines the product and inspects the manufacturing establishment to assure conformity to the BLA and all applicable regulations and standards for biologics.

 

The time for approval may vary widely depending on the specific product candidate and disease to be treated, and a number of factors, including the risk/benefit profile identified in clinical trials, the availability of alternative treatments, and the severity of the disease. Additional animal studies or clinical trials may be requested during the FDA review period, which might add substantially to the review time.

 

The FDA’s marketing approval for a product is limited to the treatment of a specific disease or condition in specified populations in certain clinical circumstances, as described on the approved labeling. The approved use is known as the “indication.” After the FDA approves a product for the initial indication, further clinical trials may be required to gain approval for the use of the product for additional indications. The FDA may also require post-marketing testing (Phase IV studies) and surveillance to monitor for adverse effects, which could involve significant expense. The FDA may also elect to grant only conditional approval.

 

Ongoing Compliance Requirements

 

Even after product approval, there are a number of ongoing FDA regulatory requirements, including:

 

●	Registration and listing;

 

●	Regulatory submissions relating to changes in an NDA or BLA (such as the manufacturing process or labeling) and annual reports;

 

 

●	Adverse event reporting;

 

●	Compliance with advertising and promotion restrictions that relate to drugs and biologics; and

 

●	Compliance with GMP and biological product standards (subject to FDA inspection of facilities to determine compliance).

 

Other Regulations

  

In addition to safety regulations enforced by the FDA, in the United States we are also subject to regulations under the Occupational Safety and Health Act, the Environmental Protection Act, the Toxic Substances Control Act and other present and potential future foreign, federal, state and local regulations. For instance, product manufacturing establishments located in certain states also may be subject to separate regulatory and licensing requirements.

 

Outside the United States, we will be subject to regulations that govern the import of drug products from the United States or other manufacturing sites and foreign regulatory requirements governing human clinical trials and marketing approval for products.  The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursements vary widely from country to country.

 

Human Resources

 

We currently have one employee, Mr. John Benson, our CFO.  Dr. Richard Franklin, our CEO and President, renders services to us on a part-time, consulting basis.    Each of these individuals also provides services to Tarix Pharmaceuticals and Tarix Orphan, LLC, private biopharmaceutical companies co-founded by Dr. Franklin and our Chairman, Mr. Joerg Gruber, which can potentially interfere with the time and attention these individuals devote to our company.  We utilize other consultants on an as needed basis for specific tasks and projects.   We may hire additional staff as our development programs progress and our needs require.

 

 

Scientific Advisory Board

 

We intend to establish a scientific advisory board comprised of leading researchers and scientists whose collective expertise is intended to complement the focus of our technology and product development activities.  Compensation to members of the advisory board may take the form of cash or equity-based payments. None of the members of the advisory board are expected to be employed by us and, therefore, will likely have employment, consulting or other commitments to other entities which may compete with their obligations to us.

 

Certain Historical Activities

 

We are a Delaware corporation which was organized in August 1990 under the name of BioMedical Polymers International, Ltd.  We changed our name to Life Medical Sciences, Inc. in June 1992 and to SyntheMed, Inc. in May 2005. In September 2011, we engaged in a reverse merger, business combination with Pathfinder, LLC, a private Massachusetts limited liability company that commenced operations in November 2008 (“Pathfinder, LLC”), pursuant to which Pathfinder, LLC became a wholly-owned subsidiary of our company (the “Merger”). Pathfinder, LLC was deemed to be the “accounting acquirer” in the Merger, and the transaction has been accounted for as a reverse acquisition of our company by Pathfinder, LLC under the purchase method of accounting for business combinations in accordance with United States generally accepted accounting principles. In connection with the Merger, the members of Pathfinder, LLC acquired control of our company, our Board of Directors was replaced with individuals designated by Pathfinder, LLC, we changed our name to Pathfinder Cell Therapy, Inc. and we increased the number of our authorized shares of Common Stock from 150 million to one billion.

 

SyntheMed Business 

 

Prior to the Merger, we were a biomaterials company focused on development and commercialization of medical devices for therapeutic applications.  Our products and product candidates were primarily surgical implants designed to prevent or reduce the formation of adhesions (scar tissue) following a broad range of surgical procedures.  We had been selling our lead product, REPEL-CV® Bioresorbable Adhesion Barrier (“REPEL-CV”), a bioresorbable film for use in cardiac surgeries, domestically since obtaining US Food and Drug Administration (“FDA”) clearance in March 2009 and internationally since obtaining CE Mark approval in August 2006.  REPEL-CV is classified as a Class III medical device by the FDA.   In the United States and some foreign countries, REPEL-CV’s marketing approval was limited to the pediatric market.  While we had continued the REPEL-CV business on a limited basis post-Merger, due to limited sales and increased operating costs we have curtailed substantially all of the operations of the business and do not anticipate devoting any further resources to the REPEL-CV business. During 2014, we had no capitalized assets associated with the REPEL-CV business.

 

 

Our rights to the REPEL-CV technology, as well as other polymer technology, are dependent upon a license agreement with Yissum Research Development Company of The Hebrew University of Jerusalem, Ltd. (“Yissum”).  The agreement imposes obligations on us, such as royalty and patent cost payment obligations and obligations to pursue development and commercialization of products under the licensed patents (which patents are currently scheduled to expire at various times between July 2016 and July 2021).  In connection with our decision to curtail the REPEL-CV business, we have elected not to fund certain ongoing patent maintenance costs that have become due. While Yissum has not yet sought to limit or terminate our rights under the license, we anticipate that they may seek to do so, which could lead to a loss of the licensed rights in some or all of the licensed technology and our ability to sell or otherwise realize value for the REPEL-CV business.

 

Item 1A.   Risks Factors.

 

Investing in our securities involves a high degree of risk.  You should consider the following risk factors, as well as other information contained or incorporated by reference in this report, before deciding to invest in our securities. The following factors affect our business and the industry in which we operate.  The risks and uncertainties described below are not the only ones we face.  Additional risks and uncertainties not presently known or which we currently consider immaterial may also have an adverse effect on our business.  If any of the matters discussed in the following risk factors were to occur, our business, financial condition, results of operations, cash flows, or prospects could be materially adversely affected, the market price of our common stock could decline and you could lose all or part of your investment in our securities.

 

Risks Related to Our Business

 

We are at an early stage of development, making our future viability, going concern, and success uncertain.

 

Our business is at an early stage of development. We are subject to all of the business risks associated with an early stage enterprise.  We are still in the process of conducting laboratory research to determine potential product candidates, and have not yet identified a lead product candidate or begun clinical trials with respect to any product candidates.  The success of our business will depend on many factors including, without limitation, our ability to obtain additional capital as and when needed, identify a viable, lead product candidate, successfully complete preclinical testing and clinical trials, obtain marketing approvals, establish manufacturing capacity to support both development and commercialization activities and establish sales and marketing capacity. We may not be able to develop any products, initiate or complete clinical trials for any product candidates, obtain requisite regulatory approvals or commercialize any products. Any potential products may prove to have undesirable and unintended side effects or other characteristics adversely affecting their safety, efficacy or cost-effectiveness that could prevent or limit their use. Any potential product incorporating our technology may fail to provide the intended therapeutic benefits or to achieve therapeutic benefits equal to or better than the standard of treatment at the time of testing or production. As a result of our early stage of development, the future viability, going concern, and success of our company is uncertain.

 

 

We have incurred losses since inception and may never achieve or sustain profitability.

 

We have never generated any profits, and we have incurred significant operating losses. We expect to incur operating losses for the foreseeable future. We had an accumulated deficit of $18,440,000 as of December 31, 2014, and had net losses of approximately $1,394,000 for the year ended December 31, 2014 and $1,705,000 for the prior year.  We do not currently have any meaningful source of revenue and may not have any sources of revenue in the foreseeable future. The extent of future operating losses is highly uncertain, and we may never achieve or sustain profitability.

 

If we fail to obtain the capital necessary to fund our operations, our financial results, financial condition and ability to continue as a going concern will be adversely affected and we will have to delay, reduce the scope of or terminate some or all of our research and development programs and may be forced to cease operations.

 

Our consolidated financial statements for the year ended December 31, 2014 have been prepared assuming that we will continue as a going concern. Our recurring losses from operations and our stockholders’ deficit raise substantial doubt about our ability to continue as a going concern.  As a result, our independent registered public accounting firm included an explanatory paragraph in its report on our consolidated financial statements for the year ended December 31, 2014 with respect to this uncertainty.  We do not anticipate generating meaningful revenue in the foreseeable future and we will need to raise additional capital to fund our operating requirements and continue as a going concern.  In addition, the perception that we may not be able to continue as a going concern may cause others to choose not to deal with us due to concerns about our ability to meet our contractual obligations and may adversely affect our ability to raise additional capital.

 

Based upon our current plan of operations, and assuming we raise capital as and when needed, we anticipate spending approximately $1 million on research and development and other activities during the 12 months ending December 31, 2015.  Our capital requirements will depend on many factors, including:

 

●	The number and type of product candidates that we pursue;

 

●	The progress, timing, scope, number and complexity of preclinical studies and clinical trials that we undertake;

 

●	The timing and cost involved in obtaining FDA and other regulatory approvals;

 

●	Costs related to maintaining, expanding and enforcing our intellectual property portfolio;

 

●	Whether we enter into joint venture, licensing or other strategic transactions involving funding or otherwise relating to research and development, manufacturing or marketing activities, and the scope and terms of any such arrangements; and

 

●	The complexity and costs associated with developing manufacturing processes, including quality control systems, and establishing  manufacturing capabilities, whether directly or through third parties, for clinical trials as well as for larger scale commercial manufacturing; and

 

●	The time and cost necessary to launch and successfully commercialize our product candidates, if approved.

 

 

We may seek to raise additional capital through equity or debt financing and collaborative arrangements, or some combination thereof. Substantially all of our operating capital requirements since February, 2012 have been provided by existing investors on a monthly, as needed basis. Additional capital may not be available on acceptable terms, or at all. If we raise capital through the sale of equity-based securities, dilution to our then-existing equity investors would result. If we obtain capital through the incurrence of debt, we would likely become subject to covenants restricting our business activities, and holders of debt instruments would have rights and privileges senior to those of our equity investors. In addition, servicing the interest and repayment obligations under borrowings would divert funds that would otherwise be available to support research and development, clinical or commercialization activities.  If we obtain capital through collaborative arrangements, these arrangements could require us to relinquish some rights to our technologies or product candidates and we may become dependent on third parties.

 

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 research and development programs and otherwise limit or cease our operations.

 

We face extensive governmental regulation by the FDA and foreign agencies and any failure to adequately comply could prevent or delay product approval or cause the disallowance of our products after approval.

 

We, and any third-party contractors, suppliers and partners we may engage, as well as any product candidates, are subject to stringent regulation by the FDA and other regulatory agencies in the United States and by comparable authorities in other countries. None of our potential product candidates can be marketed in the United States until it has been approved by the FDA.  No product candidate incorporating our cell therapy technology has been approved, and we may never receive FDA approval for any such product candidate. Obtaining FDA approval typically takes many years and requires substantial resources. Even if regulatory approval is obtained, the FDA may impose significant restrictions on the indicated uses, conditions for use and labeling of such products. Additionally, the FDA may require post-approval studies, including additional research and development and clinical trials. These regulatory requirements may limit the size of the market for the product or result in the incurrence of additional costs. Any delay or failure in obtaining required approvals could substantially reduce our ability to generate revenues.

 

In addition, both before and after regulatory approval, we, our partners and any product candidates we seek to develop, are subject to numerous FDA requirements covering, among other things, testing, manufacturing, quality control, labeling, advertising, promotion, distribution and export. The FDA’s requirements may change and additional government regulations may be promulgated that could affect us, our partners and our product candidates. Given the number of recent high profile adverse safety events with certain drug products, the FDA may require, as a condition of approval, costly risk management programs, which may include safety surveillance, restricted distribution and use, patient education, enhanced labeling, special packaging or labeling, expedited reporting of certain adverse events, preapproval of promotional materials and restrictions on direct-to-consumer advertising. Furthermore, heightened Congressional scrutiny on the adequacy of the FDA’s drug approval process and the agency’s efforts to assure the safety of marketed drugs resulted in the enactment of legislation addressing drug safety issues, the FDA Amendments Act of 2007. This legislation provides the FDA with expanded authority over drug products after approval and the FDA’s exercise of this authority could result in delays or increased costs during the period of product development, clinical trials and regulatory review and approval, and increased costs to assure compliance with new post-approval regulatory requirements. We cannot predict the likelihood, nature or extent of government regulation that may arise from this or future legislation or administrative action, either in the United States or abroad.

 

 

In order to market any of our products outside of the United States, we and any strategic partners and licensees we engage must establish and comply with numerous and varying regulatory requirements of other countries regarding safety and efficacy. Approval procedures vary among countries and can involve additional product testing and additional administrative review periods and the time required to obtain approval in other countries might differ from that required to obtain FDA approval. The regulatory approval process in other countries may include all of the risks detailed above regarding FDA approval in the United States. Approval by the FDA does not automatically lead to the approval of authorities outside of the United States and, similarly, approval by other regulatory authorities outside the United States will not automatically lead to FDA approval. In addition, regulatory approval in one country does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country may negatively impact the regulatory process in others. Our product candidates may not be approved for all indications that we request, which would limit uses and adversely impact our potential royalties and product sales. Such approval may be subject to limitations on the indicated uses for which any potential product may be marketed or require costly, post-marketing follow-up studies.

  

If we fail to comply with applicable regulatory requirements in the United States and other countries, among other things, we may be subject to fines and other civil penalties, delays in approving or failure to approve a product, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions, interruption of manufacturing or clinical trials, injunctions and criminal prosecution, any of which would harm our business.

 

Our product candidates may not successfully complete clinical trials or obtain regulatory approval, and as a result our business may never achieve profitability.

 

To obtain regulatory approvals needed for the sale of our future product candidates, we must demonstrate through testing and clinical trials that each candidate is both safe and effective for the human population that it was intended to treat.  Often, two well-controlled Phase III clinical trials are required. The clinical trial process is complex and the regulatory environment varies widely from country to country. Positive results from testing and early clinical trials do not ensure positive results in Phase III human clinical trials. It is not uncommon to suffer significant setbacks in Phase III, potentially pivotal clinical trials, even after promising results in earlier trials. The results from our trials, if any, may show that our product candidates produce undesirable side effects in humans or that they are not safe or effective or not safe or effective enough to compete in the marketplace. Such results could cause us or regulatory authorities to interrupt, delay or halt clinical trials of the product candidate. Moreover, we, the FDA, or foreign agencies may suspend or terminate clinical trials at any time if we or they believe the trial participants face unacceptable health risks or that the product candidates are not safe or effective enough. Clinical trials are lengthy and expensive.  They require sufficient patient enrollment, which is a function of many factors, including:

 

●	the size of the patient population;

 

●	the nature of the protocol (i.e., how the drug is given, and the size and frequency of the dose and use of placebo control);

 

●	the proximity of patients to clinical sites; and

 

●	the eligibility criteria for the clinical trial (i.e., age group, level of symptoms, concomitant diseases or medications etc.).

 

The commencement and completion of clinical trials may be delayed or prevented by several factors, including:

 

●	FDA or IRB (Internal Review Board of the applicable institution at which the trial is conducted) objection to proposed protocols;

 

●	discussions or disagreement with the FDA over the adequacy of trial design to potentially demonstrate effectiveness, and subsequent design modifications;

 

●	unforeseen safety issues;

 

 

●	determination of dosing issues and related adjustments;

 

●	lack of effectiveness during clinical trials;

 

●	slower than expected rates of patient recruitment;

 

●	product quality problems (e.g., sterility or purity);

 

●	challenges to patient monitoring and data collection during or after treatment (for example, patients’ failure to return for follow-up visits); and

 

●	failure of medical investigators to follow our clinical protocols.

 

Delays in commencement or completion of clinical trials, or negative outcomes, can result in increased costs and longer development times.  Even if we successfully complete clinical trials, we may not be able to file any required regulatory submissions in a timely manner and we may not receive regulatory approval for the particular product candidate that was tested.

 

In addition, if the FDA or foreign regulatory authorities require additional clinical trials, we could face increased costs and significant development delays.  Changes in regulatory policy or guidance or additional regulations adopted during product development and regulatory review of information we submit could also require us to change clinical protocols or otherwise result in delays or rejections. Increased public attention to drug safety issues may result in a more cautious approach by the FDA to clinical trials.  Data from clinical trials may receive greater scrutiny with respect to safety, which may make the FDA authorities more likely to terminate clinical trials before completion or require longer or additional clinical trials that may result in substantial additional expense and a delay or failure in obtaining approval or approval for a more limited indication than originally sought.

 

We may find it difficult to enroll patients in clinical trials.

 

Although the initial clinical uses of Pathfinder Cells are expected to be for diseases that affect a large number of people (diabetes, myocardial infarction, kidney damage), it may nevertheless be difficult to recruit patients for clinical trials. There are some treatments for each of these diseases, and there are other treatments under development that may be undergoing clinical trials at the same time. This could make it difficult for us to enroll the number of patients that may be required for the clinical trials we would be required to conduct in order to obtain marketing approval for our product candidates. Our inability to enroll a sufficient number of patients for clinical trials would result in significant delays and could require us to abandon one or more clinical trials altogether.

 

We intend to rely on medical research institutions and clinical investigators to conduct clinical trials, which will result in a loss of control by us over the performance of the trials and could adversely affect our ability to obtain regulatory approval for product candidates .

 

We intend to rely on third parties such as contract research organizations (CROs), medical research institutions and clinical investigators to conduct clinical trials of our product candidates. Our dependence upon these relationships will reduce our control over these activities and could adversely affect our ability to obtain regulatory approval for product candidates, or the timing thereof. Such institutions or investigators may not assign as great a priority to our programs or pursue them as diligently as we would if we were undertaking such programs directly. If these third parties do not successfully carry out their contractual duties or obligations or meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or otherwise, our clinical trials may be extended, delayed or terminated.  We may be unable to quickly replace any such third party. Such third parties may also have relationships with other commercial entities that compete with us.

 

 

Public perception of ethical and social issues may limit or discourage the type of research we conduct.

 

Any clinical trials we undertake will involve people, and we and third parties with whom we contract also do research involving animals. Governmental authorities could, for public health or other purposes, limit the use of human or animal research or prohibit the practice of our technology. Public attitudes may be influenced by claims that our technology or that regenerative medicine generally is unsafe for use in research or is unethical and akin to cloning. In addition, animal rights activists could protest or make threats against facilities in which our research activities are conducted, which may result in property damage and subsequently delay our research. Ethical and other concerns about our methods, particularly our use of human subjects in clinical trials or the use of animal testing, could adversely affect market acceptance of our product candidates.

 

Our research and development programs are based on novel technologies and are inherently risky.

 

We are subject to the risks of failure inherent in the development of products based on new technologies. The novel nature of our cell therapy technology creates significant challenges with respect to product development and optimization, manufacturing, government regulation and approval, third-party reimbursement and market acceptance. For example, the FDA has relatively limited experience with the development and regulation of cell therapy products and, therefore, the pathway to marketing approval for our cell therapy product candidates may accordingly be more complex, lengthy and uncertain than for a more conventional product candidate. The indications of use for which we choose to pursue development may have clinical effectiveness endpoints that have not previously been reviewed or validated by the FDA, which may complicate or delay our effort to ultimately obtain FDA approval. Our efforts to overcome these challenges may not prove successful, and any product candidate we seek to develop may not be successfully developed or commercialized.  

 

We will depend on strategic collaborations with third parties to develop and commercialize product candidates, and we may not have control over a number of key elements relating to the development and commercialization of any such product candidate.

 

A key aspect of our strategy is to seek collaboration with a partner, such as a large pharmaceutical organization, that is willing to further develop and commercialize a selected product candidate.  To date, we have not entered into any such collaborative arrangement.

 

By entering into any such strategic collaboration, we may rely on our partner for financial resources and for development, regulatory and commercialization expertise. Our partner may fail to develop or effectively commercialize our product candidate because they:

  

●	do not have sufficient resources or decide not to devote the necessary resources due to internal constraints such as limited cash or human resources;

 

●	decide to pursue a competitive potential product developed outside of the collaboration;

 

●	cannot obtain the necessary regulatory approvals;

 

●	determine that the market opportunity is not attractive; or

 

●	cannot manufacture or obtain the necessary materials in sufficient quantities from multiple sources or at a reasonable cost.

 

 

We may not be able to enter into a collaboration on acceptable terms, if at all.  We face competition in our search for partners from other organizations worldwide, many of whom are larger and are able to offer more attractive deals in terms of financial commitments, contribution of human resources, or development, manufacturing, regulatory or commercial expertise and support.

 

If we are not successful in attracting a partner and entering into a collaboration on acceptable terms, we may not be able to complete development of or commercialize any product candidate. In such event, our ability to generate revenues and achieve or sustain profitability would be significantly hindered and we may not be able to continue operations as proposed, requiring us to modify our business plan, curtail various aspects of our operations or cease operations.

 

Third parties to whom we may license or transfer development and commercialization rights for products covered by intellectual property rights may not be successful in their efforts, and as a result, we may not receive future royalty or other milestone payments relating to those products or rights.

 

If we fail to meet our obligations under our license agreements, we may lose our rights to key technologies on which our business depends.

 

Our business depends on licenses from third parties.  These third party license agreements impose obligations on us, such as payment obligations and obligations diligently to pursue development of commercial products under the licensed patents.  If a licensor believes that we have failed to meet our obligations under a license agreement, the licensor could seek to limit or terminate our license rights, which could lead to costly and time-consuming litigation and, potentially, a loss of the licensed rights.  During the period of any such litigation, our ability to carry out the development and commercialization of potential products could be significantly and negatively affected.  If our license rights were restricted or ultimately lost, our ability to continue our business based on the affected technology platform could be adversely affected.

 

We may not be able to obtain sufficient supply of our product candidates to support preclinical, clinical and commercial use, which will delay or prevent further development and regulatory approval of any such product candidates.

 

We have no internal manufacturing capacity and intend to rely on arrangements with third parties to supply quantities of product candidates sufficient for preclinical and clinical use, as well as for commercial use. The manufacture of cell-based therapies is a complicated and difficult process.  Cells produced to date have been grown only under laboratory conditions and only in small numbers sufficient to be used in preclinical testing involving smaller animals.  For testing in models involving larger animals, and for toxicology testing and clinical trials, much larger numbers of cells will be required.  If we are not able to enter into arrangements to supply quantities sufficient for preclinical and clinical use, further development of such product candidate will be delayed or prevented.  Similarly, if we are unable to establish arrangements to supply quantities sufficient for commercial use, we will be unable to obtain regulatory approval for those product candidates. Moreover, we cannot assure investors that any contract manufacturers or suppliers we may procure will be able to supply product in a timely or cost effective manner or in accordance with applicable regulatory requirements or our specifications.

 

 

Our Products May Not Achieve Market Acceptance, Thereby Limiting Our Potential to Generate Revenue.

 

Product candidates incorporating our cell therapy technology are anticipated to represent substantial departures from established treatment methods and will compete with a number of more conventional drugs and therapies manufactured and marketed by major pharmaceutical companies. Even if a product candidate of ours is approved for commercial sale by the FDA or other regulatory authorities, the degree of market acceptance of any approved product candidate by physicians, healthcare professionals and third-party payors, and our profitability and growth, will depend on a number of factors, including:

 

●	clinical efficacy and safety;
●	relative convenience and ease of administration;
●	the prevalence and severity of adverse side effects;
●	availability and cost of alternative treatments;
●	pricing and cost-effectiveness, which may be subject to regulatory control;
●	effectiveness of our or any of our partners’ sales and marketing strategies;
●	the product labeling or product insert required by the FDA or regulatory authority in other countries; and
●	the availability of adequate third-party insurance coverage or reimbursement.

 

If any product candidate that we develop does not provide a treatment regimen that is as beneficial as the current standard of care or otherwise does not provide patient benefit, that product candidate, if approved for commercial sale by the FDA or other regulatory authorities, likely will not achieve market acceptance and our ability to generate revenues from that product candidate would be substantially reduced.

 

If users of any product we may eventually have are unable to obtain adequate coverage of and reimbursement for such product from government and other third-party payors, our revenues and profitability will suffer.

 

Our ability to successfully commercialize any product we may eventually have will depend in significant part on the extent to which appropriate coverage of and reimbursement for such product and any related treatments are obtained from governmental authorities, private health insurers and other organizations, such as health maintenance organizations, or HMOs.  Third-party payors are increasingly challenging the prices charged for medical products and services.  We cannot provide any assurance that third-party payors will consider any product we may eventually have cost-effective or provide coverage of and reimbursement for such product, in whole or in part.

 

Uncertainty exists as to the coverage and reimbursement status of newly approved medical products and services and newly approved indications for existing products.  Third-party payors may conclude that any product we may eventually have is less safe, less clinically effective, or less cost-effective than existing products, and third-party payors may not approve such product for coverage and reimbursement.  If we are unable to obtain adequate coverage of and reimbursement for any product we may eventually have from third-party payors, physicians may limit how much or under what circumstances they will prescribe or administer them.  Such reduction or limitation in the use of any such product would cause sales to suffer.  Even if third-party payors make reimbursement available, payment levels may not be sufficient to make the sale of any such product profitable.

 

In addition, the trend towards managed health care in the United States and the concurrent growth of organizations such as HMOs, which could control or significantly influence the purchase of medical services and products, may result in inadequate coverage of and reimbursement for any product we may eventually have.  Many third-party payors, including in particular HMOs, are pursuing various ways to reduce pharmaceutical costs, including, for instance, the use of formularies.  The market for any product we may eventually have depends on access to such formularies, which are lists of medications for which third-party payors provide reimbursement.  These formularies are increasingly restricted, and pharmaceutical companies face significant competition in their efforts to place their products on formularies of HMOs and other third-party payors.  This increased competition has led to a downward pricing pressure in the industry.  The cost containment measures that third-party payors are instituting could have a material adverse effect on our ability to operate profitably.

 

  

Health care reform measures could adversely affect our business.

 

The business and financial condition of pharmaceutical and biotechnology companies are affected by the efforts of governmental and third-party payors to contain or reduce the costs of health care. In the United States and in foreign jurisdictions, there have been, and we expect that there will continue to be, a number of legislative and regulatory proposals aimed at changing the health care system. For example, in some countries other than the United States, pricing of prescription drugs is subject to government control, and we expect proposals to implement similar controls in the United States to continue. Another example of reform that could affect our business is drug reimportation into the United States ( i.e ., the reimportation of approved drugs originally manufactured in the United States back into the United States from other countries where the drugs were sold at lower prices). Initiatives in this regard could decrease the price we or any potential collaborators receive for our product candidates if they are ever approved for sale, adversely affecting our future revenue growth and potential profitability. Moreover, the pendency or approval of such proposals could result in a decrease in our stock price or adversely affect our ability to raise capital or to obtain strategic partnerships or licenses.

 

We face intense competition and rapid technological change, which could limit our revenue potential.

 

The biotechnology, pharmaceutical and regenerative medicine industries are characterized by intense competition. We face competition from companies and institutions that, like us, are focused on discovering and developing novel products and therapies for the treatment of human disease based on regenerative medicine technologies or other novel scientific principles, as well as traditional pharmaceutical and non-cell based therapy approaches. Our competitors have products that have been approved or are in advanced development and may succeed in developing therapies that are more effective, safer and more affordable or more easily administered than ours, or that achieve patent protection or commercialization sooner than any products we may develop.   Many of these competitors have significantly greater capital resources and experience in research and development,   manufacturing, testing, obtaining regulatory approvals, and marketing than we currently do, as well as established manufacturing and sales and marketing capabilities.  We anticipate that competition in the regenerative medicine industry will increase. In addition, the health care industry is characterized by rapid technological change, resulting in new product introductions and other technological advancements. Competitors may develop and market products and therapies that render any products we develop less competitive or otherwise obsolete.

 

We are dependent on a limited management team and key scientists, the loss of whom could harm our business.

 

Our business is dependent on a limited number of management personnel, consisting of Dr. Richard Franklin, our President and CEO, and Mr. John Benson, our CFO and sole employee.   Dr. Franklin renders services to us on a part-time consulting basis with no minimum time commitment.    In addition to their services for our company, Dr. Franklin and Mr. Benson also serve as CEO and financial consultant, respectively, of Tarix Pharmaceuticals and Tarix Orphan, LLC, private biopharmaceutical companies co-founded by Dr. Franklin and our Chairman, Mr. Joerg Gruber, , which can potentially interfere with the time and attention they devote to our company.  If any member of our management leaves, we may be unable on a timely basis to hire suitable replacements to operate our business effectively. We are also dependent on the services of Dr. Paul Shiels and Dr. Wayne Davies, who are co-inventors of key aspects of our cell therapy technology and assist with our research and development program, and each of whom has commitments to other entities that may limit their availability to us.  There is intense competition for qualified managerial personnel and scientists from numerous pharmaceutical and biotechnology companies, as well as from academic and government organizations, research institutions and other entities.  The loss or unavailability of the services of any of our management or these scientists, could materially adversely affect our business. We do not have key-man insurance on the lives of any of our management personnel.

 

 

Consumers may sue us for product liability, which could result in substantial liabilities that exceed our available resources and damage our reputation.

 

Developing and commercializing drug and human therapeutic products entails significant product liability risks. Liability claims may arise from our and our collaborators’ use of products in clinical trials and the commercial sale of those products. Consumers may make product liability claims directly against us and/or our collaborators, and our collaborators or others selling these products may seek contribution from us if they incur any loss or expenses related to such claims. While we have insurance coverage that we believe to be adequate for our existing preclinical activities, we will need to increase and expand our insurance coverage if we commence clinical trials, as the level of clinical trial activity expands, and if any product candidate is approved for commercial sale. This insurance may be prohibitively expensive or may not fully cover our potential liabilities.  Our inability to obtain sufficient insurance coverage at an acceptable cost or otherwise to protect against potential product liability claims could prevent or inhibit the regulatory approval or commercialization of products that we or one of our collaborators develop. Product liability claims could damage our reputation and have a material adverse effect on our business and results of operations. Liability from such claims could exceed our total assets if we do not prevail in any lawsuit brought by a third party alleging that an injury was caused by one or more of our products.  Any of these results would substantially harm our business.

 

We have incurred, and expect to continue to incur, increased costs and risks as a result of being a public company.

 

As a public company, we are required to comply with the Sarbanes-Oxley Act of 2002, or SOX, as well as rules and regulations implemented by the SEC and any exchange on which our securities may be listed.  Changes in the laws and regulations affecting public companies, including the provisions of SOX and rules adopted by the SEC, have resulted in, and will continue to result in, increased costs to us as we respond to their requirements.  Given the risks inherent in the design and operation of internal controls over financial reporting, the effectiveness of our internal controls over financial reporting is uncertain.  If our internal controls are not designed or operating effectively, we may not be able to conclude an evaluation of our internal control over financial reporting as required or we or our independent registered public accounting firm may determine that our internal control over financial reporting was not effective.  Investors may lose confidence in the reliability of our financial statements, which could cause the market price of our common stock to decline and which could affect our ability to run our business as we otherwise would like to.  New rules could also make it more difficult or more costly for us to obtain certain types of insurance, including directors’ and officers’ liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the coverage that is the same or similar to our current coverage.  The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our Board of Directors, our Board committees, and as executive officers.  We cannot predict or estimate the total amount of the costs we may incur or the timing of such costs to comply with these rules and regulations.

 

Risks Related to Our Intellectual Property

 

Patents obtained by other persons may result in infringement claims against us that are costly to defend and which may limit our ability to use the disputed technologies and prevent us from pursuing research and development or commercialization of potential products.

 

If third party patents or patent applications contain claims infringed by either our licensed technology or other technology required to make or use our potential products and such claims are ultimately determined to be valid, there can be no assurance that we would be able to obtain licenses to these patents at a reasonable cost, if at all, or be able to develop or obtain alternative technology.  If we are unable to obtain such licenses at a reasonable cost, we may not be able to develop any affected product candidate commercially.  There can be no assurance that we will not be obliged to defend ourselves in court against allegations of infringement of third party patents.  Patent litigation is very expensive and could consume substantial resources and create significant uncertainties. An adverse outcome in such a suit could subject us to significant liabilities to third parties, require disputed rights to be licensed from third parties, or require us to cease using such technology.

 

 

If we are unable to obtain patent protection and other proprietary rights, our operations will be significantly harmed.

 

Our ability to compete effectively is dependent upon obtaining patent protection relating to our technologies. The patent positions of pharmaceutical, biotechnology, and cell therapy companies, including ours, are uncertain and involve complex and evolving legal and factual questions. The coverage sought in a patent application can be denied or significantly reduced before or after the patent is issued. Consequently, we do not know whether pending patent applications for our technology will result in the issuance of patents, or if any issued patents will provide significant protection or commercial advantage or will be circumvented by others. Since patent applications are secret until the applications are published (usually 18 months after the earliest effective filing date), and since publication of discoveries in the scientific or patent literature often lags behind actual discoveries, we cannot be certain that the inventors of our intellectual property, whether owned or licensed by us, were the first to make the inventions at issue or that any patent applications at issue were the first to be filed for such inventions. There can be no assurance that patents will issue from pending patent applications or, if issued, that such patents will be of commercial benefit to us, afford us adequate protection from competing products, or not be challenged or declared invalid.

 

For our licensed intellectual property, we have limited control over the amount or timing of resources that are devoted to the prosecution of such intellectual property. Due to this lack of control and general uncertainties in the patent prosecution process, we cannot be sure that any licensed patents will result from licensed applications or, if they do, that they will be maintained. Issued U.S. patents require the payment of maintenance fees to continue to be in force. We rely on licensors to do this and their failure to do so could result in the forfeiture of patents not maintained in a timely manner. Many foreign patent offices also require the payment of periodic annuities to keep patents and patent applications in good standing. As we do not maintain control over the payment of annuities, we cannot assure you that our licensors will timely pay such annuities and that the granted patents and pending patent applications will not become abandoned. In addition, our licensors may have selected a limited amount of foreign patent protection, and therefore applications have not been filed in, and foreign patents may not have been perfected in, all commercially significant countries.

 

The patent protection of potential product candidates involves complex legal and factual questions. To the extent that it would be necessary or advantageous for any of our licensors to cooperate or lead in the enforcement of our licensed intellectual property rights, we cannot control the amount or timing of resources such licensors devote on our behalf or the priority they place on enforcing such rights. We may not be able to protect our intellectual property rights against third party infringement, which may be difficult to detect. Additionally, challenges may be made to the ownership of our intellectual property rights, our ability to enforce them, or our underlying licenses.

 

We cannot be certain that any of the patents issued to us or to our licensors will provide adequate protection from competing products.

 

Our success will depend, in part, on whether we or our licensors can:

 

●	obtain and maintain patents to protect product candidates;

 

●	obtain and maintain any required or desirable licenses to use certain technologies of third parties, which may be protected by patents;

 

●	protect our trade secrets and know-how;

 

●	operate without infringing the intellectual property and proprietary rights of others;

 

●	enforce the issued patents under which we hold rights; and

 

●	develop additional proprietary technologies that are patentable.

 

 

The degree of future protection for our proprietary rights (owned or licensed) is uncertain. For example:

 

●	we or our licensor might not have been the first to make the inventions covered by pending patent applications or issued patents owned by, or licensed to, us;

 

●	we or our licensor might not have been the first to file patent applications for these inventions;

 

●	others may independently develop similar or alternative technologies or duplicate any of the technologies owned by, or licensed to, us;

 

●	it is possible that none of the pending patent applications owned by, or licensed to, us will result in issued patents;

 

●	any patents under which we hold rights may not provide us with a basis for commercially viable products, may not provide us with any competitive advantages or may be challenged by third parties as invalid, or unenforceable under U.S. or foreign laws; or

 

●	any of the issued patents under which we hold rights may not be valid or enforceable or may be circumvented successfully in light of the continuing evolution of domestic and foreign patent laws.

 

Confidentiality agreements with employees and others may not adequately prevent disclosure of our trade secrets and other proprietary information and may not adequately protect our intellectual property, which could limit our ability to compete.

 

We rely in part on trade secret protection in order to protect our proprietary trade secrets and unpatented know-how. However, trade secrets are difficult to protect, and we cannot be certain that others will not develop the same or similar technologies on their own. We have taken steps, including entering into confidentiality agreements with our employees, consultants, outside scientific collaborators and other advisors, to protect our trade secrets and unpatented know-how. These agreements generally require that the other party keep confidential and not disclose to third parties all confidential information developed by the party or made known to the party by us during the course of the party’s relationship with us. We also typically obtain agreements from these parties which provide that inventions conceived by the party in the course of rendering services to us will be our exclusive property. However, these agreements may not be honored and may not effectively assign intellectual property rights to us. Further, we have limited control, if any, over the protection of trade secrets developed by our licensors. Enforcing a claim that a party illegally obtained and is using our trade secrets or know-how is difficult, expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States may be less willing to protect trade secrets or know-how. The failure to obtain or maintain trade secret protection could adversely affect our competitive position.

 

A dispute concerning the infringement or misappropriation of our proprietary rights or the proprietary rights of others could be time consuming and costly, and an unfavorable outcome could harm our business.

 

A number of pharmaceutical, biotechnology and other companies, universities and research institutions have filed patent applications or have been issued patents relating to cell therapy, and other technologies potentially relevant to or required by our potential product candidates. We cannot predict which, if any, of such applications will issue as patents or the claims that might be allowed. We are aware of a number of patent applications and patents claiming use of cells or modified cells to treat disease, disorder or injury.

 

 

There is significant litigation in our industry regarding patent and other intellectual property rights. While we are not currently subject to any pending intellectual property litigation, and are not aware of any such threatened litigation, we may be exposed to future litigation by third parties based on claims that our product candidates or their methods of use, manufacturing or other technologies or activities infringe the intellectual property rights of such third parties. If our product candidates or their methods of manufacture are found to infringe any such patents, we may have to pay significant damages or seek licenses under such patents. We have not conducted comprehensive searches of patents issued to third parties relating to possible product candidates. Consequently, no assurance can be given that third-party patents containing claims covering any product candidate we choose to develop, its method of use or manufacture do not exist or have not been filed and will not be issued in the future. Because some patent applications in the United States may be maintained in secrecy until the patents are issued, and because patent applications in the United States and many foreign jurisdictions are typically not published until 18 months after filing, we cannot be certain that others have not filed patent applications that will mature into issued patents that relate to our current or future product candidates that could have a material effect in developing and commercializing one or more of our product candidates. A patent holder could prevent us from importing, making, using or selling the patented compounds. We may need to resort to litigation to enforce our intellectual property rights or to determine the scope and validity of third-party proprietary rights. Similarly, we may be subject to claims that we have inappropriately used or disclosed trade secrets or other proprietary information of third parties. If we become involved in litigation, it could consume a substantial portion of our managerial and financial resources, regardless of whether we win or lose. Some of our competitors may be able to sustain the costs of complex intellectual property litigation more effectively than we can because they have substantially greater resources. We may not be able to afford the costs of litigation. Any legal action against us or our collaborators could lead to:

 

●	payment of actual damages, royalties, lost profits, potentially treble damages and attorneys’ fees, if we are found to have willfully infringed a third party’s patent rights;

 

●	injunctive or other equitable relief that may effectively block our ability to further develop, commercialize and sell our products;

 

●	we or our collaborators having to enter into license arrangements that may not be available on commercially acceptable terms if at all; or

 

●	significant cost and expense, as well as distraction of our management from our business.

 

As a result, we could be prevented from commercializing current or future product candidates.

 

 

Risks Related to Our Stock

 

The Sale or Availability for Sale of Substantial Amounts of Common Stock Could Adversely Affect Our Stock Price

 

The sale or availability for sale of substantial amounts of our Common Stock, including shares issuable upon exercise of outstanding stock options and warrants, in the public market could adversely affect the market price of our Common Stock. As of February 28, 2015, we had 667,160,870 shares of Common Stock issued and outstanding and the following shares of Common Stock were reserved for issuance:

 

●	6,276,306 shares upon exercise of outstanding warrants, exercisable at $.055 per share and expiring on September 30, 2016;

 

●	17,971,260 shares upon exercise of outstanding options, exercisable at prices ranging from $0.05 to $1.16 per share and expiring from December 15, 2015 to September 16, 2021; and

 

●	95,600,000 shares upon conversion of notes in the aggregate principal amount of $4,780,000, plus additional shares for accrued interest thereon.

 

Substantially all of our outstanding shares of common stock are freely tradable without restriction or further registration under the Securities Act of 1933 (as amended, the “Securities Act”), except that shares held by “affiliates” of our company, as that term is used within the meaning of Rule 144 under the Securities Act, may only be sold in accordance with the volume and other limitations of Rule 144. Exercise of substantially all of our outstanding options (other than those assumed in the Merger) are presently covered by registration statements, which include a resale prospectus for our “affiliates” (as that term is defined in the rules under the Securities Act of 1933).  Subject to our filing of a registration statement covering exercise of the options assumed in the Merger, holders of these options will be free to sell the underlying shares in the public market without restriction so long as the registration statements remain current.  In addition, many of the warrants include a cashless exercise provision which, if utilized, would permit the holder to sell the underlying shares in reliance upon Rule 144 without commencement of a new holding period. 

 

 

There is currently a limited market for our stock, and any trading market that exists in our stock may be highly illiquid and may not reflect the underlying value of our net assets or business prospects.

 

Our common stock is traded on the OTC Pink trading market. There is currently a limited market for our stock and there can be no assurance that an active market will ever develop. Investors are cautioned not to rely on the possibility that an active trading market may develop.

 

Our stock price is volatile, and investors may not be able to resell our shares at a profit or at all.

 

The market prices for securities of biopharmaceutical and biotechnology companies, and early-stage human therapeutic development companies like us in particular, have historically been highly volatile and may continue to be highly volatile in the future. The following factors, in addition to other risk factors described in this section, may have a significant impact on the market price of our common stock:

 

●	the development status of any product candidates, including clinical study results and determinations by regulatory authorities with respect thereto;

 

●	the initiation, termination, or reduction in the scope of any collaboration arrangements or any disputes or developments regarding such collaborations;

 

●	announcements of technological innovations, new commercial products or other material events by our competitors or us;

 

●	disputes or other developments concerning our proprietary rights;

 

●	changes in, or failure to meet, securities analysts’ or investors’ expectations of our financial performance;

 

●	additions or departures of key personnel;

 

●	discussions of our business, products, financial performance, prospects or stock price by the financial and scientific press and online investor communities;

 

●	public concern as to, and legislative action with respect to, the pricing and availability of prescription drugs or the safety of drugs and drug delivery techniques; or

 

●	regulatory developments in the United States and in foreign countries.

 

Broad market and industry factors, as well as economic and political factors, also may materially adversely affect the market price of our common stock .

 

Provisions in Our Charter and Delaware Law May Deter a Third Party From Seeking to Obtain Control of us or May Affect Your Rights as a Stockholder.

 

Our Restated Certificate of Incorporation authorizes the issuance of a maximum of 5,000,000 shares of Preferred Stock on terms that may be fixed by our Board of Directors without further stockholder action. The terms of any series of Preferred Stock could adversely affect the rights of holders of the Common Stock. The issuance of Preferred Stock could make the possible takeover of our company more difficult or otherwise dilute the rights of holders of the Common Stock and the market price of the Common Stock. In addition, we may be subject to Delaware General Corporation Law provisions that may have the effect of discouraging persons from pursuing a non-negotiated takeover of our company and preventing certain changes of control.

 

 

Ownership of our common stock is concentrated in the hands of a few stockholders, which will limit other stockholders’ influence in stockholder decisions.

 

At February 28, 2015, approximately 43% of our outstanding common stock was beneficially owned by one investor, Breisgau Bio Ventures S.A., and an additional approximate 16% of our outstanding common stock was beneficially owned in the aggregate by Dr. Franklin, our President and CEO, and Mr. Gruber, the Chairman of our Board of Directors. As a result, these persons could significantly influence or control all matters requiring stockholder approval, including the election and removal of directors and certain transactions involving a change in control of our company.  The interests of these stockholders may not coincide with the interests of our company or the interests of other stockholders.

 

We presently do not intend to pay cash dividends on our common stock.

 

We currently anticipate that no cash dividends will be paid on our common stock in the foreseeable future. While our dividend policy will be based on the operating results and capital needs of the business, it is anticipated that all earnings, if any, will be retained to finance operating requirements.

 

Item 1B.  Unresolved Staff Comments.

 

Not Applicable

 

Item 2.   Properties.

 

We lease office space in a multi-tenant building in Cambridge, Massachusetts. The location, which occupies 700 square feet, serves as our corporate headquarters. We believe that this space is adequate for our present needs.

 

Item 3.   Legal Proceedings.

 

Our company is not a party to any material legal proceedings and is not aware of any such proceedings which may be contemplated by governmental authorities.

 

Item 4.   Mine Safety Disclosures.

 

Not applicable.

 

PART II

 

Item 5.   Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

 

Market Information.

 

Our common stock is quoted in the OTC Pink trading market under the symbol “PFND.”  The following sets forth the quarterly high and low bid prices for our common Stock for the periods presented.  Such quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

 

 

		Common Stock Bid Price ($)
		High				Low
Fiscal Year Ended December 31, 2013
First Quarter			0.03				0.01
Second Quarter			0.05				0.01
Third Quarter			0.04				0.01
Fourth Quarter			0.03				0.01
Fiscal Year Ended December 31, 2014
First Quarter			0.02				0.01
Second Quarter			0.02				0.003
Third Quarter			0.01				0.002
Fourth Quarter			0.003				0.001
Fiscal Year Ending December 31, 2015
First Quarter (through March 15)			0.03				0.001

 

On February 27, 2015, the closing sale price of our common stock, as reported by OTC Pink, was $0.01 per share.

 

Approximate Number of Equity Securities Holders.

 

As of March 13, 2015, the number of holders of record of our common stock was 308. We believe that there are in excess of 1,200 beneficial holders of our common stock.

 

Dividends.

 

We have never paid a cash dividend on our common stock. We anticipate that for the foreseeable future any earnings will be retained for use in our business and, accordingly, do not anticipate the payment of any cash dividends.

 

Item 6.   Selected Financial Data.

 

Not Applicable.

 

Item 7.   Management's Discussion and Analysis of Financial Condition and Results of Operations.

 

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.

 

 

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, peripheral vascular disease, and other diseases as potential indications for therapies based on our technology.

 

Our development activities with respect to cell-derived and related therapies have been limited to laboratory and preclinical testing. Our development plan calls for conducting additional preclinical safety and efficacy studies with respect to indentified and other potential indications.

 

Our cell therapy business represents our principal operations and we intend to devote substantially all of our efforts and resources to the development and commercialization of our cell therapy technology. Prior to 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.

 

Critical Accounting Policies and Estimates

 

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.  The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses, and related disclosure of contingent assets and liabilities.  On an on-going basis, we evaluate our estimates, including those related to our ability to continue as a going concern, the useful life of intangible assets, and income taxes.  We base our 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 apparent from other sources.  A more detailed discussion on the application of these and other accounting policies can be found in Note B in the Notes to the Financial Statements included elsewhere in this report. Actual results may differ from these estimates under different assumptions or conditions.

 

 

Results of Operations

 

We had no revenue for 2014, compared to revenue of $54,000 for 2013.  Revenue has been derived solely from REPEL-CV sales. As a result of limited sales and increased operating costs associated with REPEL-CV and our focus on cell therapy, during the second quarter of 2014 we curtailed substantially all of the operations of the REPEL-CV business.  As a result, we do not anticipate future revenue from REPEL-CV sales.   We have not generated any revenue from our cell therapy business.

 

We had no cost of goods sold for 2014, compared to cost of goods sold of $37,000 for 2013. Cost of goods sold reflected raw material costs and the cost of processing and packaging REPEL-CV into saleable form. The prior year also included a charge of $13,000 for an increase in the reserve for slow moving and obsolete inventory.

 

Research and development expenses totaled $262,000 for 2014, compared to $585,000 for 2013, a decrease of 55.2% or $323,000. The decrease is primarily attributable to a reduction in University of Glasgow research fees of $326,000 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, decreases in spending on pre-clinical animal models of $57,000, and decreased expenses incurred for the legacy SyntheMed business of $13,000, offset by an increase in consulting fees of $44,000 and an increase in spending on pre-GMP services for cell development and production for use in pre-clinical animal models of $30,000.

 

General and administrative expenses totaled $850,000 for 2014, compared to $1,008,000 for 2013, a decrease of 15.7% or $158,000. The decrease is primarily attributable to decreases in professional fees of $142,000, consulting fees of $28,000, decreased expenses incurred for the legacy SyntheMed business of $14,000, offset by increases in board meeting expenses of $12,000 and insurance expense of $16,000.

 

We incurred sales and marketing expenses of $7,000 for 2014, compared to $23,000 for 2013, a decrease of 69.6% or $16,000.  The Company’s sales and marketing expenses are primarily related to the sale of REPEL-CV.

 

We recorded an impairment charge of $161,000 in 2013. The charge was attributable to the termination of the MGH license agreement the second quarter of 2013. 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 2014.

 

Net interest expense totaled $275,000 for 2014 compared to $195,000 for 2013, an increase of 41% or $80,000. The increase is primarily attributable to interest charges related to increased balances of short term convertible notes payable.

 

We realized other income from the reversal of a liability of $250,000 in 2013. This liability was attributable to a long term payable for our estimated licensing fee obligations under the MGH license agreement. The reversal was recorded as a result of the MGH license agreement termination. There were no comparable amounts for 2014.

 

 

We incurred a net loss of $1,394,000 for 2014, compared to $1,705,000 for 2013, a decrease of 18.2% or $311,000.  The decrease is attributable to the factors described above. We expect to incur losses for the foreseeable future.

 

Liquidity and Capital Resources

 

At December 31, 2014 we had cash and cash equivalents of $26,000, compared to $44,000 at December 31, 2013.

 

At December 31, 2014 we had negative working capital of $5,976,000, compared to negative working capital of $4,587,000 at December 31, 2013.

 

Net cash used in operating activities was $963,000 for 2014, compared to $1,601,000 for 2013.  Net cash used in operating activities for 2014 was primarily comprised of a net loss of $1,394,000, offset by decreases in prepaid expenses of $77,000 and increases in accounts payable and accrued expenses totaling $349,000. Net cash used in operating activities for the prior year was primarily comprised of a net loss of $1,705,000, combined with a decrease in accrued expenses of $103,000 and the impact of $73,000 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 of the MGH license agreement, offset by $161,000 of impairment losses attributable to the impairment of the MGH license. These amounts were offset by decreases in accounts receivable, inventory and prepaid expenses totaling $163,000 and an increase in accounts payable of $114,000. 

 

Net cash provided by financing activities for 2014 was $945,000, compared to $1,636,000 for 2013.  The 2014 amount is comprised of $1,005,000 of proceeds from short term notes payable, offset by $60,000 in payments of insurance notes payable for the financing of our directors’ and officers’ insurance premiums. The 2013 amount is comprised of $1,735,000 of proceeds from short term notes payable, offset by $99,000 in payments of insurance notes payable for the financing of our product liability insurance premiums and our directors’ and officers’ insurance premiums.

 

  

At the time of the Merger in September 2011, we raised $4,146,000 in equity capital, $1,375,000 of which was paid in cash and the balance by conversion of debt. Since February 2012, we have borrowed from existing investors an aggregate principal amount of $4,705,000, much of which has been provided on a monthly, as needed basis by our principal stockholder and all of which remained outstanding as of December 31, 2014. An additional $185,000 has been borrowed in 2015 through March 27th. 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 $3,700,000 in principal amount as of December 31, 2014, has 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 the capital raise at the time of the Merger, at any time prior to completion or termination of that capital raise.

 

The cash balance as of December 31, 2014 and the subsequent borrowings through March 27, 2015 are not sufficient to meet our anticipated cash requirements through December 31, 2015, which include an estimated $1 million for research and development and other expenditures.  We need to raise additional funds to support our planned operations.  If we are unable to obtain adequate financing on a timely basis, we may be required to delay, reduce the scope of or eliminate one or more of our planned development programs and otherwise limit or cease our operations.

 

The lack of profitable operations and the need to continue to raise funds raise substantial doubt about our ability to continue as a going concern.  The report of the independent registered public accounting firm relating to our 2014 audited financial statements contains an explanatory paragraph referring to an uncertainty that raises doubt about the our ability to continue as a going concern.

 

At December 31, 2014, we 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, our commitment regarding cash severance benefits aggregates $29,000 at December 31, 2014. For a discussion of certain other commitments, see Note H of Notes to Financial Statements.

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

 

Not Applicable.

 

Item 8.   Financial Statements and Supplementary Data.

 

The Index to Financial Statements appears on page F-1, the Report of the Independent Registered Public Accounting Firm appears on page F-2, and the Financial Statements and Notes to Financial Statements appear on pages F-3 to F-19.

 

 

Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

 

None.

 

Item 9A.   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 annual 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.

 

Annual Report on Internal Control Over Financial Reporting

 

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f).  Under the supervision and with the participation of our management, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.  Based on our evaluation, management has concluded that our internal control over financial reporting was effective as of December 31, 2014. In accordance with rules of the Securities and Exchange Commission, this annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting.

 

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 fourth quarter of 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.

 

 

Item 9B.  Other Information.

 

Not Applicable.

 

PART III

 

Item 10.  Directors, Executive Officers and Corporate Governance.

 

Our executive officers and members of our Board of Directors are as follows:

 

				Director / Officer		Position with
Name		Age		Since		Company
John Alam, M.D		53		September 2011		Director
John Benson		53		September 2011		Chief Financial Officer and Treasurer
John L. Brooks III		64		September 2011		Director
Zen Chu		43		September 2011		Director
Richard L. Franklin, M.D., Ph.D		69		December 2000		Chief Executive Officer, President, Secretary and Director
Joerg Gruber		54		April 2007		Chairman of the Board
Brock Reeve		57		September 2011		Director

 

John Alam, M.D. has served as a director of our company since September 2011. Dr. Alam has 24 years pharmaceutical/biotechnology industry experience, primarily in R&D. Currently he is Chief Executive & Founder of EIP Pharma, LLC, a boston-area private biotechnology company that is developing a brain-targeted anti-inflammatory clinical investigational drug for Alzheimer’s disease. From 2011 to 2014, Dr. Alam was therapeutic area head for diseases of aging within Sanofi R&D; and Senior Medical Advisor at Inhibitex Inc. from April 2010 to February 2012. From 1997 until October 2008, Dr. Alam held positions of increasing responsibility at Vertex Pharmaceuticals, Inc., including Chief Medical Officer and Executive Vice President, Medicines Development.   From 1991 to 1997 at Biogen Inc, Dr. Alam led the clinical development of Avonex (interferon beta-1a) for multiple sclerosis. Dr. Alam received a degree in chemical engineering from Massachusetts Institute of Technology, and a medical degree from Northwestern University School of Medicine. Subsequently, Dr. Alam completed an internal medicine residency at Brigham and Women’s Hospital and a post-doctoral fellowship at Dana-Farber Cancer Institute.

 

John Benson has served as CFO and Treasurer of our company since September 2011.  Prior thereto, and since 2006, Mr. Benson had served as controller of our company. From 2003 to 2005, Mr. Benson served as controller of the spine products division of Stryker Corporation. Mr. Benson is a certified public accountant with over twenty five years’ experience in corporate accounting and finance. Mr. Benson holds a degree in accounting from Saint Bonaventure University..

 

John L. Brooks III has served as a director of our company since September 2011.  Mr. Brooks is the President and CEO of the Joslin Diabetes Center and has also served as the principal managing director of Healthcare Capital LLC, a firm he founded in September 2008 that provides strategic and financial advice to early stage life science companies. Mr. Brooks was a founder of Prism Venture Partners, a venture capital firm, and served as a general partner from February 1997 through December 2010. Mr. Brooks serves as a director of a number of early stage companies, and had served as chief executive officer of Reflectance Medical, an early stage noninvasive physiologic measurement company, from October 2009 through June 2011. From February through August 2008, Mr. Brooks served as a managing director of Medical Capital Advisors, a healthcare investment banking firm.  Mr. Brooks was formerly a general manager at Pfizer/Valleylab, with overall responsibility for its minimally invasive surgery business, and at Pfizer/Strato Medical, a vascular access medical device company. Mr. Brooks has co-founded four life sciences companies, including Insulet (PODD).  Mr. Brooks is a biotechnology advisory board member for Draper Laboratory, the Pittsburgh Life Sciences Greenhouse (PLSG) and the PLSG Accelerator Fund. Mr. Brooks is also a board member of the Longwood Medical Energy Cooperative. Mr. Brooks holds an M.S. degree in business and a B.B.A. degree from the University of Massachusetts at Amherst.  He is a certified public accountant and a certified financial planner.

 

 

Zen Chu has served as a director of our company since September 2011. Mr. Chu has cofounded four medical technology companies and has been the first investor in many more through Accelerated Medical Ventures.  Mr. Chu created and teaches the MIT Healthcare Ventures graduate courses within the pioneering Health Science & Technology (HST) program, a joint initiative between MIT, Harvard Medical School and the Boston academic hospitals.  As Managing Director of Accelerated Medical Ventures (AMV) and its subsidiary Boston Digital Health Foundry, Mr. Chu specializes in building early-stage medical technology and healthcare service companies, usually serving as co-founder and first investor. AMV’s portfolio spans Boston, Silicon Valley and China. Alongside four world-renowned MIT biomaterials professors, Mr. Chu co-founded 3D-Matrix Medical Inc., serving as the first CEO for the venture-backed MIT regenerative medicine company whose injectable gel drug delivery products are treating patients and enabling new regenerative medicine research. Mr. Chu has managed and led new ventures for Harvard Medical School, Harvard’s Wyss Institute for Bioengineering, NetVentures and Hewlett-Packard.  Mr. Chu earned a Masters of Public & Private Management from Yale University and a BS in biomedical/electrical engineering from SMU.

 

Richard L. Franklin, M.D., Ph.D. has served as CEO, President and Secretary of our company since September 2011 and as a director since December 2000.  He served as Executive Chairman of our company from October 2008 to September 2010, and as Chairman from June 2003 until September 2011.  Dr. Franklin is a co-founder of our subsidiary, Pathfinder, LLC, and has served as its CEO, President and sole manager since its inception.  Dr. Franklin is a director of Raptor Pharmaceuticals, Inc., a publicly traded drug development company. Dr. Franklin is founder, CEO and a director of Tarix Pharmaceuticals, a private company developing peptides for the treatment of ischemic stroke recovery, peripheral vascular disease, and diabetes. Dr. Franklin is founder and CEO of Tarix Orphan LLC, a company focused on the development of peptides to treat muscular dystrophy and Marfan syndrome. Dr. Franklin has an M.D. degree from Boston University School of Medicine, a Ph.D. degree in mathematics from Brandeis University and a B.A. degree in economics from Harvard University.

 

Joerg Gruber has served as Chairman of the Board of our company since September 2011 and as a director since April 2007.  Mr. Gruber co-founded Clubb Capital Limited, a London-based corporate finance and venture capital firm with a principal focus on healthcare, in 1995 and has been its Chairman since 1999. Prior to his career in venture capital, Mr. Gruber spent 14 years in banking and investment banking at UBS, Goldman Sachs and Lehman Brothers. Mr. Gruber co-founded Pathfinder, LLC with Dr. Franklin.  Mr. Gruber has served as Chairman of Pathfinder, LLC since 2008 and as Chairman of Tarix Pharmaceuticals since 2007. Mr. Gruber is Chairman of Tarix Orphan LLC, a company focused on the development of peptides to treat muscular dystrophy and Marfan syndrome and is also a director of AvidBiologics Inc., a privately-held biopharmaceutical company specializing in the development of oncology products.

 

Brock Reeve has served as a director of our company since September 2011.  Mr. Reeve has served as Executive Director of the Harvard Stem Cell Institute since March 2006. The institute is a collaborative of scientists and practitioners from Harvard University, Harvard Medical School and Harvard’s affiliated hospitals and research institutions, focused on stem cell research, funding and education. The institute currently has approximately 100 principal faculty and 200 affiliated faculty.  Since February 2014, Mr. Reeve has been a director at Poliwogg Advisers, developing and leading an investment fund focused on the regenerative medicine area. Mr. Reeve’s business career started with the Boston Consulting Group.  Prior to joining the institute, from 2003 to 2006 Mr. Reeve served as chief operating officer and managing director of Life Science Insights, a  division of International Data Corporation, a consulting and market research firm specializing in information technology in life sciences.  Previously, Mr. Reeve was an associate partner in the pharmaceutical and life sciences practice in IBM’s Business Consulting Services group.  Mr. Reeve has a bachelor’s degree from Yale College, masters’ degrees from Yale University and an MBA from Harvard Business School.

 

 

Each of our directors brings unique perspectives and experiences to their service as members of our Board of Directors, which collectively combine to strengthen the ability of our Board of Directors to bring value to our shareholders.  For example, Messrs. Brooks, Chu, Reeve and Drs. Franklin and Alam have chief executive management experience in the life science and/or healthcare industries.  Mr. Reeve has experience in strategic and corporate management consulting with a focus on the life science industry.  Messrs. Brooks, Chu and Gruber and Dr. Franklin bring backgrounds in investment banking and corporate finance.  In addition, Messrs. Gruber and Brooks and Dr. Franklin have experience serving on the boards of directors of other life science and healthcare companies.

 

Audit Committee

 

The Audit Committee of our Board of Directors is composed of three directors, two of whom are independent within the meaning of the rules of the Nasdaq Stock Market.  The Audit Committee reviews the Company’s auditing, accounting, financial reporting and internal control functions and selects the independent registered public accounting firm.  In addition, the committee monitors the non-audit services of the independent registered public accounting firm.  During fiscal 2014, the Audit Committee met four times.  In addition, during 2014, the Chairman met with the independent registered public accounting firm to review each of our Form 10-Q filings.  The members of the Audit Committee are Mr. Brooks as Chairman, Dr. Franklin and Mr. Chu.  Mr. Brooks is deemed a “financial expert” within the meaning of Securities and Exchange Commission regulations.  The committee’s charter is included on our website.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

We believe that all reports required to be filed during 2014 by our executive officers, directors and beneficial owners of 10% or more of our common stock, pursuant to Section 16(a) of the Securities Exchange Act of 1934, as amended, and the rules promulgated thereunder, were timely filed, except that Breisgau Bio Ventures S.A. failed to timely file Form 4s for three separate transactions.

 

Ethics Code

 

We have adopted a Code of Business Conduct (“Code”) applicable to our employees, officers and directors.  The Code is intended to comply with requirements of the Securities and Exchange Commission’s rules. Copies of the Code may be obtained by stockholders, free of charge, by mailing a request to our Secretary.

 

 

Item 11.  Executive Compensation.

 

The following table sets forth certain information concerning compensation paid or accrued through February 28, 2015 for services in all capacities during the fiscal years ended December 31, 2014 and 2013 by each person who served as our principal executive officer at any time during fiscal 2014 and our other most highly compensated executive officers as determined in accordance with Item 402(m) of Regulation S-K promulgated by the Securities and Exchange Commission (the “Named Executive Officers”).
 

Summary Compensation Table
 

Name and Principal Position		Year				Salary ($)				Stock Awards ($)				All Other Compensation ($)				Total ($)
Richard L. Franklin, MD			2014				0				0				120,000	(1)			120,000
Chief Executive Officer, President & Secretary			2013				0				0				120,000	(1)			120,000
John Benson			2014				114,400				0				4,600	(2)			119,000
CFO & Treasurer			2013				112,700				0				4,500	(2)			117,200

 

(1)	Represents consulting fees.

 

(2)	Represents 401(k) retirement plan account contributions made by the Company for Mr. Benson’s benefit.

 

 

The following table sets forth certain information with respect to all outstanding equity awards as of December 31, 2014 to the Named Executive Officers:

 

Outstanding Equity Awards at Fiscal Year-End for 2014

 

Name		Number of Securities Underlying Unexercised Options (#) Exercisable				Number of Securities Underlying Unexercised Options (#) Unexercisable				Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)				Options Exercise Price ($)				Option Expiration Date
Richard L. Franklin, MD			75,000				-				-				0.80				5/08/2016
			65,000				-				-				0.85				4/23/2017
			65,000				-				-				0.49				4/25/2018
			1,449,987				-				-				0.05				12/15/2015
			1,654,987				-				-
John Benson			150,000				-				-				1.16				9/11/2016
			100,000				-				-				0.80				2/16/2017
			100,000				-				-				0.41				1/18/2018
			50,000				-				-				0.10				2/23/2019
			62,500				-				-				0.13				1/17/2020
			100,000				-				-				0.11				2/28/2020
			1,000,000								-				0.05				9/16/2021
			1,562,500

 

 

Management Agreements

 

We have a consulting agreement with Dr. Richard Franklin, who serves as our Chief Executive Officer, President and Secretary and as a member of our Board of Directors. We have an employment agreement with Mr. John Benson, who serves as our Chief Financial Officer and Treasurer.

 

Franklin Consulting Agreement

 

Dr. Franklin provides services to us pursuant to a consulting agreement entered into in October 2008.  Under the agreement, as originally entered into, Dr. Franklin served as our Executive Chairman at a compensation rate of $100,000 per year.  Effective upon the merger with Pathfinder, LLC in September 2011, Dr. Franklin’s officer status was expanded to his current positions. From August 2012 through February 2015, Dr. Franklin’s compensation had been $120,000 per year. Effective March 1, 2015, Dr. Franklin’s annual compensation was reduced to $60,000, to reflect an anticipated increased allocation of his time to the business of Tarix Pharmaceuticals and Tarix Orphan, LLC. The agreement renews annually for one-year periods, subject to termination by either party on prior notice. The agreement contains non-disclosure, non-compete and non-solicitation provisions, as well as provisions relating to the ownership of intellectual property.

 

Benson Employment Agreement

 

Mr. Benson is employed by us pursuant to an employment agreement originally entered into in September 2006.  The agreement is for an initial one-year term, subject to automatic renewal for one-year periods absent three months’ prior written notice of termination by the Company.  Under the agreement, Mr. Benson is entitled to a base salary plus annual cost of living increases. For 2014, Mr. Benson was entitled to a base salary of $114,400, which was equal to the 2013 base salary plus the applicable cost of living increase. Effective March 1, 2015, Mr. Benson’s base salary was reduced to $73,000 to reflect an anticipated increased allocation of his time to the business of Tarix Pharamaceuticals and Tarix Orphan, LLC. Mr. Benson is also eligible for such bonuses and stock options as the board of directors shall deem appropriate.    Mr. Benson has the right to participate in, to the extent otherwise eligible under the terms thereof, the benefit plans and programs, including medical and savings and retirement plans, and receive the benefits and perquisites generally provided to employees of the same level and responsibility and is entitled to agreed-upon vacation.  If Mr. Benson dies, is terminated for “Cause,” voluntarily resigns other than for “Good Reason”, as such terms are defined in the agreement, or is unable to perform his duties on account of death or disability and the employment agreement is terminated, he or his legal representative shall be entitled to receive from us the base salary which would otherwise be due to the date when termination of employment occurred.  Under certain circumstances, we may become obligated to pay severance to Mr. Benson under the employment agreement. These circumstances include (i) termination of employment without “Cause” and (ii) Mr. Benson’s resignation for "Good Reason.”  The severance obligation is equal to three months of base salary.  The employment agreement contains confidentiality, ownership of intellectual property, non-compete and non-solicitation provisions.  

 

Director Compensation

 

Each of our directors 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 $20,000, except for Dr. Franklin, who receives no additional compensation for his services as a director.

 

We reimburse all directors for reasonable expenses incurred by them in acting as a director or as a member of any committee of the Board.

 

The following table sets forth certain information with respect to total compensation earned by each person who served as a member of the Board of Directors at any time during the year ended December 31, 2014, other than Dr. Franklin whose compensation is disclosed in the Summary Compensation Table above.

 

 

Director Compensation for 2014

 

Name		Fee Earned or Paid in Cash ($)				Stock Awards ($)				Total ($)
Joerg Gruber			20,000				0				20,000
John Alam, M.D.			20,000				0				20,000
John L. Brooks III			20,000				0				20,000
Zen Chu			20,000				0				20,000
Brock Reeve			20,000				0				20,000

  

Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

 

Set forth below is information concerning the stock ownership of all persons known by the Company to own beneficially 5% or more of the outstanding shares of any class of voting securities of the Company, all directors, the Named Executive Officers (as defined in “Executive Compensation - Summary Compensation Table”) and all directors and executive officers of the Company as a group, as of February 28, 2015.  The address of the officers and directors named in the following table is c/o Pathfinder Cell Therapy, Inc., 12 Bow Street, Cambridge, MA 02138.

 
 

Name of Beneficial Owner or Number in Group		Shares of Common Stock Beneficially Owned (1)				Percent of Class
Breisgau Bio Ventures S.A.			308,131,913	(2)			42.8
GU Holdings Limited			63,524,929	(3)			9.5
Richard L. Franklin			45,556,781	(4)			6.8
Joerg Gruber			59,474,367	(5)			8.8
Paul Shiels (6)			38,114,957				5.7
John Benson			1,638,333	(7)			*
Brock Reeve			602,636	(8)			*
John Brooks			602,636	(8)			*
Zen Chu			602,636	(8)			*
John Alam			602,636	(8)			*
All executive officers and directors as a group (7 persons)			109,080,024	(9)			16.0

 

*             Denotes less than one percent.

 

(1)           Beneficial ownership is defined in accordance with the rules of the Securities and Exchange Commission and generally means the power to vote and/or dispose of the securities regardless of any economic interest therein.  In accordance with such rules, shares beneficially owned includes shares that the named person has the right to acquire upon exercise of options and warrants, or upon conversion of convertible securities, within 60 days from February 28, 2015 and does not include shares underlying such securities that may be held by such persons that are not exercisable or convertible currently or within such period or that are subject to performance-based vesting.  All shares listed are beneficially owned, and sole voting and investment power is held by the persons named, except as otherwise noted.

 

 

(2)           Voting and investment power with respect to these shares is held by Mr. Heinz Klauz, Breisgau Bio Ventures S.A.’s address is Caminada Treuhand AG Att: Heinz Klauz, Lindenstrasse 16, 6340 Baar, Switzerland. Includes 52,306,651 shares of Common Stock issuable upon conversion of promissory notes and related accrued interest.

 

(3)           Voting and investment power with respect to these shares is vested in the board of directors of GU Holdings Limited, an affiliate of the University of Glasgow.  Based on information provided on behalf of GU Holdings Limited, the names of the members of the board of directors are Michael Scot Morton, Neal Juster, John Lumsden and Steve Beaumont. GU Holdings Limited’s address is 13 The Square, University of Glasgow, Glasgow, United Kingdom G12 8QQ.

 

(4)           Includes 1,654,987 shares of Common Stock issuable upon exercise of options.

 

(5)           Includes 195,000 shares issuable upon exercise of options held by Mr. Gruber, 2,435,668 shares of Common Stock issuable upon conversion of promissory notes and related accrued interest as well as 823,000 shares and 6,276,306 shares underlying warrants held by Clubb Capital Limited, of which Mr. Gruber is Chairman and a director. Mr. Gruber disclaims beneficial ownership of the securities held by Clubb Capital Limited, except to the extent of his pecuniary interest therein.

 

(6)           Mr. Shiels’ address is 188 Churchill Drive, Broomhill, Glasgow, United Kingdom G11 7HA.

 

(7)           Includes 1,562,500 shares of Common Stock issuable upon exercise of options.

 

(8)           Represents shares of Common Stock issuable upon exercise of options.

 

(9)           Includes 14,340,005 shares of Common Stock issuable upon exercise of options, warrants and convertible promissory notes.

 

 

Securities Authorized For Issuance Under Equity Compensation Plans

 

The following table summarizes, as of December 31, 2014, certain information concerning equity compensation plans for employees and directors of and consultants to the Company:

 

Plan Category		Number of securities to be issued upon exercise of outstanding options, warrants and rights				Weighted average exercise price of outstanding options, warrants and rights				Number of securities remaining available for future issuance
Equity compensation plans approved by security holders			17,377,000	(1)		$	0.13				7,623,000
Equity compensation plans not approved by security holders			594,000			$	0.48				0
Total			17,971,000			$	0.14				7,623,000

 

(1)	Includes an aggregate of 14,061,410 shares of common stock underlying stock options assumed in connection with the merger with Pathfinder, LLC and replaced with stock options under the Company’s 2006 Stock Option Plan.  The weighted average exercise price of such stock options is $.05 per share.

 

30,000 fully vested options have been granted to one individual under our 2000 Non-Qualified Stock Option Plan at an exercise price of $0.80 per share and with a termination date of February 16, 2017.  None of these options were granted to our directors or officers.

 

364,000 options have been granted to six individuals under our 2001 Non-Qualified Stock Option Plan at exercise prices ranging from $0.08 to $0.80 per share and with termination dates ranging from February 16, 2017 to June 20, 2020. Of the total options issued, 264,000 were vested at year-end, and the balance vest on anti-adhesion product development milestones related to the legacy SyntheMed business. Of these, we granted options to directors and officers as follows: 65,000 to Mr. Gruber.

 

200,000 options have been granted to one individual pursuant to other agreements at exercise prices ranging from $0.40 to $0.60 per share, all of which are scheduled to expire on October 1, 2018.  All 200,000 were vested at year-end.  None of these options were granted to our directors or officers.

 

Item 13.  Certain Relationships and Related Transactions.

 

Capital Raises

 

Since January 1, 2012, we have borrowed from investors an aggregate $4,705,000, evidenced by promissory notes bearing interest at 6% per annum. Of such amounts, $100,000 was invested by Mr. Joerg Gruber in March, 2013 and $2,365,000 was invested by Breisgau Bio Ventures SA. through March, 2014.   Principal and interest are due and payable on the first anniversary of issuance. None of the holders whose notes have matured, aggregating $3,925,000 in principal amount as of February 28, 2015, has requested payment. The principal amount of the promissory notes, including accrued and unpaid interest thereon, is convertible at the election of the holders into shares of our common stock at any time prior to completion or termination of the capital raise the initial closing of which occurred in connection with our merger with Pathfinder, LLC in September 2011, at the subscription price thereof.

 

University of Glasgow

 

In March 2009, our subsidiary, Pathfinder, LLC, entered into a research agreement with The University Court of the University of Glasgow, an affiliate of GU Holdings Limited, pursuant to which Pathfinder, LLC agreed to fund and the University agreed to conduct research relating to technology licensed by Pathfinder, LLC from the University pursuant to a separate license agreement.  Each year through March 2014 we have extended the research period and our corresponding funding commitment under the agreement. For the 12 months ended March 2014 and 2013, our funding commitment was $332,000 and $667,000, respectively, payable over the course of the 12 months.   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 evaluating the potential renewal and terms of future research to be conducted at the University.

 

 

As of February 28, 2015, the University beneficially owned 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 assisted with the Company’s research and development program through the University and effective April, 2014 he provides scientific consulting services to us pursuant to a separate agreement. Under the agreement we pay Dr. Shiels an annual compensation of GBP 30,000 (approximately $47,000 based on exchange rates in effect on December 31, 2014).As of February 28, 2015, Dr. Shiels and Dr. Davies beneficially owned 5.7% and 3.8%, respectively, of the outstanding shares of common stock of the Company.

 

Director Independence

 

Each of our directors, other than Mr. Gruber and Dr. Franklin, is “independent” within the meaning of the rules of the Nasdaq Stock Market.

 

Item 14.  Principal Accounting Fees and Services.

 

The following table summarizes fees billed to the Company by EisnerAmper LLP, our independent registered public accounting firm, for 2014 and 2013:

 

		2014				2013
Audit Fees		$	112,270			$	78,559
Audit-related Fees			-				-
Tax Fees			-				-
Other Fees			-				-

 

Audit fees include fees for the annual audit and review of financial statements included in that year’s Form 10-Q filings, as well as fees for any other services normally provided by the principal accountant in connection with statutory or regulatory filings, including SEC filings, or engagements.

 

The Audit Committee’s current policy is to pre-approve all audit and non-audit services that are to be performed and fees to be charged by our independent auditor to assure that the provision of these services does not impair the independence of the auditor. All of the non-audit fees were approved by the Audit Committee pursuant to Rule 2-01(c)(7)(i)(C) of SEC Regulation S-X, which provides a waiver of the pre-approval requirements for certain de minimis activities.

 

Part IV

 

Item 15.  Exhibits, Financial Statement Schedules.

 

(a)(1) and (2)  Financial Statements and Financial Statement Schedules – See page F-1.

 

(a)(3)  Exhibits

 

2.1		Agreement and Plan of Merger, dated as of December 22, 2010, by and among Registrant, SYMD Acquisition Sub, Inc., a wholly-owned subsidiary of Registrant, and Pathfinder, LLC, as amended.  (Incorporated by reference to Annex A of the definitive proxy statement on Schedule 14A filed by Registrant with the Securities and Exchange Commission on July 26, 2011.)
3.1		Restated Certificate of Incorporation of Registrant, filed December 26, 1991, as amended. (Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (Reg. No. 33-94008) declared effective on September 22, 1992.)
3.1(a)		Amendment to Restated Certificate of Incorporation, dated August 21, 1992. (Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (Reg. No. 33-94008) declared effective on September 22, 1992.)
3.1(b)		Amendment to Restated Certificate of Incorporation, dated April 22, 2005. (Incorporated by reference to the Registrant’s report on Form 10-KSB for the year ended December 31, 2006.)
3.1(c)		Amendment to Restated Certificate of Incorporation, dated April 27, 2006. (Incorporated by reference to the Registrant’s report on Form 10-QSB for the quarter ended March 31, 2006.)
3.1(d)		Amendment to the Restated Certificate of Incorporation of Registrant, as filed with the State of Delaware on September 1, 2011.  (Incorporated by reference to the Registrant’s report on Form 8-K filed September 9, 2011).
3.2		By-Laws of Registrant. (Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (Reg. No. 33-94008) declared effective on September 22, 1992.)
3.2(a)		Amendment to By-Laws of Registrant, adopted September 29, 2011. (Incorporated by reference to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011 filed with the Securities and Exchange Commission on March 30, 2012.)
3.3		Certificate of Designations of Series D Junior Participating Preferred Stock of the Registrant. (Incorporated by reference to the Registrant’s report on Form 8-K filed in May 2008.)

 

 

3.4		Certificate of Elimination of Series A Convertible Preferred Stock, Series B Convertible Preferred Stock and Series C Convertible Preferred Stock. (Incorporated by reference to the Registrant’s report on Form 8-K filed in May 2008.)
10.1		The Registrant’s 2000 Stock Option Plan. (Incorporated by reference to the Registrant’s report on Form 8-K filed in May 2008.)
10.2		Agreement, dated December 1, 2011, between Registrant and Yissum Research Development Company of the Hebrew University of Jerusalem. (Incorporated by reference to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011 filed with the Securities and Exchange Commission on March 30, 2012.)
10.3		Form of Indemnification Agreement entered into between Registrant and certain officers and directors of Registrant. (Incorporated by reference to Registrant’s Registration Statement on Form S-1 (Reg. No. 333-02588) declared effective on May 3, 1996.)
10.4		2001 Non-Qualified Stock Option Plan including form of Stock Option Agreement. (Incorporated by reference to the Registrant’s report on Form 10-K for the year ended December 31, 2001.)
10.5		Consulting Agreement dated October 1, 2008 between the Registrant and Richard L. Franklin, MD. (Incorporated by reference to the Registrant’s report on Form 10-Q for the quarter ended September 30, 2008.) (2)
10.5(a)		Compensation arrangement with Dr. Richard L. Franklin, MD. (1)
10.6		The Registrant’s 2006 Stock Option Plan, as amended. (Incorporated by reference to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011 filed with the Securities and Exchange Commission on March 30, 2012.)
10.7		Form of ISO and Non-Qualified Stock Option Agreements under the Registrant’s 2006 Stock Option Plan. (Incorporated by reference to the Registrant’s report on Form 10-KSB for the year ended December 31, 2006.)
10.8 - 10.11(b)		Intentionally omitted.

 

 

10.12		Research Agreement dated March 23, 2009 between The University Court of the University of Glasgow and Pathfinder, LLC. (Incorporated by reference to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, filed with the Securities and Exchange Commission on November 21, 2011.)
10.12(a)		Extension No. 2 to Research Agreement dated March 23, 2009 between The University Court of the University of Glasgow and Pathfinder, LLC. (Incorporated by reference to Amendment No. 1 to Registrant’s Annual Report on Form 10-K/A for the year ended December 31, 2011 filed with the Securities and Exchange Commission on April 30, 2012
10.12(b)		Extension No. 3 to Research Agreement dated March 28, 2013 between The University Court of the University of Glasgow and Pathfinder, LLC. (1)
10.13		License Agreement dated March 23, 2009 between The University Court of the University of Glasgow and Pathfinder, LLC. (Incorporated by reference to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, filed with the Securities and Exchange Commission on November 21, 2011.)
10.17		Form of broker warrant issued for an aggregate of 6,276,306 shares to Clubb Capital Limited or its designees in connection with the 2011 private placement. (Incorporated by reference to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, filed with the Securities and Exchange Commission on November 21, 2011.)
10.18		Promissory Note dated September 2, 2011 issued by Registrant to Clubb Capital Limited for the deferred portion of the placement agent commission. (Incorporated by reference to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, filed with the Securities and Exchange Commission on November 21, 2011.)
10.19		Form of Promissory Notes issued by Registrant in favor of investors since 2012 aggregating $4,890,000 in principal amount through March 27, 2015, including schedule of investors.(1)
10.20		Employment Agreement dated September 8, 2006, between the Registrant and John Benson. (Incorporated by reference to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011 filed with the Securities and Exchange Commission on March 30, 2012.) (2)

 

 

10.20(a)		Compensation arrangement with John Benson. (1)
21		List of subsidiaries. (Incorporated by reference to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011 filed with the Securities and Exchange Commission on March 30, 2012.)
23.1		Consent of EisnerAmper LLP. (1)
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. (1)
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. (1)
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. (1)
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. (1)
101		Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Condensed Statements of Operations for the years ended December 31, 2014 and 2013, (ii) the Condensed Consolidated Balance Sheets at December 31, 2014 and December 31, 2013, (iii) the Condensed Consolidated Statements of Cash Flows for the years ended December 31, 2014 and 2013 and (iv) the Notes to the Condensed Consolidated Financial Statements.  (1)

 

(1)	Filed herewith.

 

(2)	Indicates a management contract or compensatory plan or arrangement.

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) 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.
	(Registrant)
	By:	/s/ Richard L. Franklin, M.D.
		Richard L. Franklin, M.D.
		CEO and President

 

Dated:  March 31, 2015

 

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Signatures		Title		Date
/s/ Richard L. Franklin, M.D.		CEO, President and Director
Richard L. Franklin, M.D.		(principal executive officer)		March 31, 2015
/s/ John M. Benson		CFO and Treasurer		March 31, 2015
John M. Benson		(principal financial and accounting officer)
/s/ Joerg Gruber		Chairman of the Board of Directors		March 31, 2015
Joerg Gruber
/s/ John Alam		Director		March 31, 2015
John Alam
/s/ John Brooks III		Director		March 31, 2015
John Brooks III
/s/ Zen Chu		Director		March 31, 2015
Zen Chu
/s/ Brock Reeve		Director		March 31, 2015
Brock Reeve

 

  

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

		Page Number
Report of Independent Registered Public Accounting Firm		F-2
Consolidated Balance Sheets		F-3
Consolidated Statements of Operations		F-4
Consolidated Statements of Changes in Capital Deficit		F-5
Consolidated Statements of Cash Flows		F-6
Notes to Consolidated Financial Statements		F-7

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

The Board of Directors and Stockholders

Pathfinder Cell Therapy, Inc.

  

We have audited the accompanying consolidated balance sheets of Pathfinder Cell Therapy, Inc. (a development stage company) (the "Company") as of December 31, 2014 and 2013, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for each of the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Pathfinder Cell Therapy, Inc. as of December 31, 2014 and 2013, the consolidated results of its operations, changes in its stockholders' equity, and its cash flows for each of the years then ended in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note A to the financial statements, the Company's recurring net losses and its lack of sufficient financial resources to fund its operations and meet its obligations, together these conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans concerning these matters are also described in Note A. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ EisnerAmper LLP

 

New York, New York

March 31, 2015

 

 

PATHFINDER CELL THERAPY, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

 

		December 31,				December 31,
		2014				2013
ASSETS
Current assets:
Cash		$	26			$	44
Prepaid expenses			47				75
Total current assets			73				119
Intangible, net of accumulated amortization			33				36
TOTAL		$	106			$	155
LIABILITIES AND CAPITAL DEFICIT
Current liabilities:
Accounts payable (including related party amount of $88 and $40, respectively)		$	229			$	190
Accrued expenses (including related party amount of $442, and $312, respectively)			837				527
Insurance note payable			34				45
Note payable - Clubb Capital			244				244
Convertible notes payable (including related party amount of $2,465 and $2,135, respectively)			4,705				3,700
Total current liabilities			6,049				4,706
Commitments and other matters (Note H)
Capital deficit:
Preferred stock, $.01 par value; shares authorized - 5,000; issued and outstanding - none
Common stock, $.001 par value; shares authorized - 1,000,000 issued and outstanding - 667,161 at December 31, 2014 and 2013, respectively			667				667
Additional paid-in capital			11,830				11,828
Accumulated deficit			(18,440	)			(17,046	)
Total capital deficit			(5,943	)			(4,551	)
TOTAL		$	106			$	155

 

See Notes to Consolidated Financial Statements

 

 

PATHFINDER CELL THERAPY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

 

		Year ended
		December 31,
		2014				2013
Revenue
Product sales		$	0			$	54
Revenue			0				54
Cost of goods sold			0				37
Gross profit			0				17
Operating expenses:
Research and development			262				585
General and administrative			850				1,008
Sales and marketing			7				23
Impairment of intangible asset			-				161
Operating expenses			1,119				1,777
Loss from operations before other income / (expense)			(1,119	)			(1,760	)
Other income/(expense):
Interest (expense), net			(275	)			(195	)
Reversal of a liability			-				250
Other income/(expense)			(275	)			55
Net loss		$	(1,394	)		$	(1,705	)
Net loss per common share-basic and diluted		$	(0.00	)		$	(0.00	)
Weighted average shares outstanding			667,161				667,161

 

See Notes to Consolidated Financial Statements

 

 

PATHFINDER CELL THERAPY, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY

(In thousands)

 

		Common Stock								Additional Paid-in				Accumulated
		Shares				Amount				Capital				Loss				Total
Balance, January 1, 2013			667,161				667				11,823				(15,341	)			(2,851	)
Stock-based Compensation			-				-				5				-				5
Net Loss			-				-				-				(1,705	)			(1,705	)
Balance, December 31, 2013			667,161				667				11,828				(17,046	)			(4,551	)
Stock-based Compensation			-				-				2				-				2
Net Loss			-				-				-				(1,394	)			(1,394	)
Balance, December 31, 2014			667,161				667				11,830				(18,440	)			(5,943	)

 

See Notes to Consolidated Financial Statements

 

 

PATHFINDER CELL THERAPY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

		Year ended
		December 31,
		2014				2013
Cash flows from operating activities:
Net loss		$	(1,394	)		$	(1,705	)
Adjustments to reconcile net loss to Net cash used in operating activities:
Depreciation and amortization			3				11
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			-				28
Decrease in inventory			-				33
Decrease in prepaid expenses			77				102
Increase in accounts payable			39				114
Increase (decrease) in accrued expenses			310				(103	)
Net cash used in operating activities			(963	)			(1,601	)
Cash flows from financing activities:
Payments of insurance note payable			(60	)			(99	)
Proceeds from convertible notes payable			1,005				1,735
Net cash provided by financing activities			945				1,636
Net (decrease) increase in cash			(18	)			35
Cash at beginning of period			44				9
Cash at end of period		$	26			$	44
Supplementary disclosure of non-cash investing and financing activities:
Financing of insurance premiums through notes payable		$	49			$	99

 

See Notes to Consolidated Financial Statements

 

 

PATHFINDER CELL THERAPY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

(NOTE A) -

The Company and Going Concern:

 

The Company is 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.

 

The accompanying financial statements have been prepared on a going concern basis which contemplates continuity of operations, realization of assets and satisfaction of liabilities in the ordinary course of business. The Company has accumulated a deficit of $18,440,000, including a net loss of $1,394,000 and $1,705,000 for the years ended December 31, 2014 and 2013, and it has generated limited revenues and has experienced negative cash flows from operating activities. To date, the Company has relied on the proceeds raised by the issuance of convertible debt and equity to fund its operating requirements. The Company does not have sufficient cash on hand, even when including the proceeds from subsequent borrowings in the aggregate of $185,000 through March 2015 (see Note L) to fund its planned operations. The Company does not expect to generate sufficient revenue from operations to meet its anticipated cash requirements based on its present plan of operations through December 31, 2015. The Company intends to seek additional funds through equity and/or debt issuances. 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. The above conditions and events raise substantial doubt about the Company’s ability to continue as a going concern.  The financial statements do not include any adjustments relating to the recoverability and classification of the carrying amount of recorded assets or the amount and classification of liabilities that might be necessary if the Company is unable to continue as a going concern.

 

(NOTE B) -

Summary of Significant Accounting Policies:

 

[1]	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.

 

[2]	Revenue recognition policy:

 

The Company recognizes revenue when the amounts become fixed and determinable, when product is shipped to customers and receipt of payment is reasonably assured. Terms of sale are “f.o.b. shipping point” with the customer covering all costs of shipment and insurance. All sales are final with no right of return except for defective product. Product sales were generated from the legacy SyntheMed business through sales of REPEL-CV.

 

  

PATHFINDER CELL THERAPY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

(NOTE B) -

Summary of Significant Accounting Policies:  (continued)

 

[3]	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 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. 

 

[4]	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. 

 

[5]	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.

 

During the quarter ended June 30, 2013, the Company determined that the technology licensed from the Massachusetts General Hospital (“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 year ended December 31, 2013.

 

 

PATHFINDER CELL THERAPY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

(NOTE B) -

Summary of Significant Accounting Policies:  (continued)

 

[6]	Research and development:

 

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

 

[7]	Patent costs:

 

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

 

[8]	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 the useful lives of intangible assets and income taxes, that affect the reported amounts of assets and liabilities and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

 

[9]	Loss per share:

 

Basic loss per share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding during each period.  Diluted loss per share for the years ended December 31, 2014 and 2013 excludes the effect of the potential exercise or conversion of securities which would result in the issuance of incremental shares of common stock because the effect would be anti-dilutive.

 

Securities and the related potential number of shares of common stock not included in the dilution computation are as follows:

    

		December 31,
		2014				2013
Options			17,971,000				20,402,000
Warrants			6,276,000				6,276,000
			24,247,000				26,678,000

 

 

PATHFINDER CELL THERAPY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

(NOTE B) -

Summary of Significant Accounting Policies:  (continued)

 

[10]	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.

 

[11]	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.

 

[12]	Fair value of financial instruments:

 

The carrying amounts of cash, accounts payable, accrued expenses and notes payable approximate fair value based on their short-term maturity.

 

[13]	Recent Accounting Pronouncement Adopted:

 

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.  

 

[14]	Reclassification:

 

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

 

 

PATHFINDER CELL THERAPY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

(NOTE C) –

Intangible Assets:

 

Intangible assets represent the intellectual property and other rights licensed to Pathfinder, LLC with respect to technologies under an agreement with the University of Glasgow.  Intangible assets at each reporting date consisted of the following:

 

		December 31,
		2014				2013
University of Glasgow		$	53,000			$	53,000
			53,000				53,000
Less accumulated amortization			20,000				17,000
		$	33,000			$	36,000

 

The Company anticipates amortizing $3,400 per year until 2023, after which there will be an additional amortization expense through March 2024 of $1,000. The Company’s management has determined that the fair value of the University of Glasgow license exceeds the book value and thus no impairment is necessary at December 31, 2014. Amortization expense for the years ended December 31, 2014 and 2013 amounted to $3,400 and $11,000, respectively.

 

 

PATHFINDER CELL THERAPY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

(NOTE D) –

Note Payable:

 

[1]	Convertible Notes Payable:

 

Since September 2010 and prior to the business combination with Pathfinder, LLC (the “Merger”), Pathfinder, LLC had been funding its operations as well as the operations of 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 (then known as SyntheMed, Inc.) for the subscription price thereof in an offering by the Company conducted in connection with the Merger, which is referred to herein as the “Capital Raise”.

 

At the initial closing of the Capital Raise, which occurred on September 2, 2011 immediately after the Merger, the payees elected to convert the entire outstanding principal, approximately $3,107,000 ($1,357,000 of which was held by Breisgau BioVentures SA), into the Company’s common stock sold in the Capital Raise (see Note F[2]). At December 31, 2014, the Company has included an accrual of approximately $96,000 for unpaid accrued interest, and such amount is included in Accrued Expenses in the accompanying consolidated balance sheet.

 

From time to time since February 2012, the Company borrowed from investors an aggregate of $4,705,000 principal amount pursuant to promissory notes bearing interest at 6% per annum for which the Company has included an accrual of approximately $493,000 for unpaid accrued interest, and such amount is included in Accrued Expenses in the accompanying consolidated balance sheet, all of which remained outstanding as of December 31, 2014. Of such amounts, $100,000 was invested by Mr. Joerg Gruber, the Company’s Chairman of the Board, and $2,365,000 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 $3,700,000 in principal amount as of December 31, 2014, has 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.

 

[2]	Insurance Notes Payable:

 

In October 2014, the Company entered into a short term financing agreement for our directors’ and officers’ liability insurance premium totaling $49,000 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.

 

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. 

 

[3]	Note Payable – Clubb Capital Limited:

 

In September 2011, the Company issued a note payable to Clubb Capital Limited in the principal amount of $244,000, representing the deferred portion of the commission to which Clubb Capital Limited was entitled in connection with the Capital Raise. The principal balance (together with accrued interest thereon at the rate of 6% per annum) became due and payable on demand at any time on or after December 30, 2011. At December 31, 2014, the Company has included an accrual of approximately $49,000 for unpaid accrued interest, and such amount is included in Accrued Expenses in the accompanying consolidated balance sheet.

 

 

PATHFINDER CELL THERAPY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

(NOTE E) –

Capital Transaction:

 

[1]

Warrants:

 

As of December 31, 2014, the following warrants were outstanding to purchase up to 6,276,306 shares of the Company’s Common Stock:

 

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

 

[2]

Options:

 

At December 31, 2014, the Company has one stock-based compensation plan, the 2006 Stock Option Plan, under which the Company is authorized to issue incentive stock options and non-qualified stock options to purchase up to an aggregate of 25,000,000 shares of common stock. At December 31, 2014, options to purchase 17,377,000 shares of common stock were outstanding pursuant to the 2006 plan, including 14,061,000 options that converted with the Merger, and there were 7,623,000 options available 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.

 

Additionally at December 31, 2014, options to purchase 30,000 shares of Common Stock were outstanding pursuant to the 2000 Plan, options to purchase 364,000 shares of Common Stock were outstanding pursuant to the 2001 Plan and options to purchase 200,000 shares of Common Stock issued outside of the plans are outstanding pursuant to other agreements.  These options vest over various periods and expire no later than ten years from the date of grant. Some of the outstanding options are subject to performance-based vesting.

 

 

PATHFINDER CELL THERAPY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

(NOTE E) –

Capital Transaction: (continued)

 

[2]	Options: (continued)

 

A summary of the status of the Company’s stock options as of December 31, 2014 and 2013, and changes during the years ended on those dates is presented below:

 

		Shares (In Thousands)				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			-				-				-
Number of shares under option plans:
Outstanding at December 31, 2013			20,402			$	0.13				2.4 Years			$	0
Cancelled, expired or forfeited			2,431				0.07
Granted			-				-
Outstanding at December 31, 2014			17,971			$	0.14				1.6 Years			$	0
Exercisable at December 31, 2014			17,871			$	0.14				1.6 Years
Vested and expected to vest at December 31, 2014			17,871			$	0.14				1.6 Years			$	0

 

As of December 31, 2014, all stock compensation related to outstanding awards has been recognized.

 

There were no options granted during the years ended December 31, 2014 and 2013, respectively.

 

The Company has recorded a charge of $2,000 in general and administrative expense for the year ended December 31 2014 for the pro-rata share of the fair value of the unvested options granted during September 2011 that vested through September 2014.

 

At December 31, 2014, the Company had 100,000 options outstanding which vest upon the achievement of certain performance criteria. These options have a term of 10 years from date of grant and an exercise price of $0.80.

 

The Company uses the Black-Scholes option pricing model to determine the weighted average fair value of options.

 

 

PATHFINDER CELL THERAPY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

(NOTE E) –

Capital Transaction: (continued)

 

[2]	Options: (continued)

 

The following table summarizes information for stock options outstanding at December 31, 2014 (in thousands, except per share data):

 

				Options Outstanding									Options Exercisable
							Weighted- Average		Weighted- Average								Weighted- Average
Range				Number			Remaining		Exercise Price				Number				Exercise Price
Exercise Prices				Outstanding			Contractual Life		Per Share				Exercisable				Per Share
$	0.05 - 0.13				15,428		1.4 years		$	0.05				15,428			$	0.05
	0.30 – 0.85				2,393		2.5 years			0.66				2,293				0.65
	1.16				150		1.7 years			1.16				150				1.16
					17,971		1.6 years		$	0.14				17,871			$	0.14

 

(NOTE F) -

Income Taxes:

 

At December 31, 2014, we have approximately $41,733,000 of net operating loss carryforwards to offset future federal taxable income and approximately $578,000 of research and development tax credit carryforwards available to offset future federal income tax, subject to limitations for alternative minimum tax.  As a result of the Merger, the Company’s net operating losses and the research and development credit carryforwards will be subject to limitation, In general, the formula will be the value of the equity times the prescribed federal rate at September 30, 2011 of 3.86%.

 

The Company’s net operating loss and research and development credit carryforwards expire as follows:

 

		Net				Research and
		Operating				Development
Year		Loss				Tax Credit
2018 - 2034		$	41,733,000			$	578,000
		$	41,733,000			$	578,000

 

At December 31, 2014, the Company has net operating loss carryforwards for New Jersey State income tax purposes of approximately $18,202,000 which expire through 2029.

 

The deferred tax asset, which amounted to $16,260,000 at December 31, 2014, has been offset by a valuation allowance against the entire benefit due to management's uncertainty regarding the future profitability of the Company and ability to utilize the benefit. The valuation allowance was increased by $559,000 in 2014.

 

 

PATHFINDER CELL THERAPY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

(NOTE F) -

Income Taxes: (continued)

 

The difference between income taxes at the statutory federal income tax rate and income taxes reported in the statements of operations are attributable to the following at December 31:

 

		2014				2013
Income tax benefit at the federal statutory rate		$	(474,000	)		$	(580,000	)
Change in valuation allowance			559,000				689,000
Stock based compensation			2,000				2,000
State and local income tax, net of effect on federal taxes			(83,000	)			(100,000	)
Other			(4,000	)			(11,000	)
		$	0			$	0

  

The deferred tax asset at December 31 consists of the following:

 

		2014				2013
Net operating loss carryforward		$	15,282,000			$	14,727,000
Research and development credit carryforward			578,000				574,000
Other			400,000				400,000
			16,260,000				15,701,000
Valuation allowance			(16,260,000	)			(15,701,000	)
		$	0			$	0

 

Under the guidance of FASB ASC 740-10-25, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. As of December 31, 2014, the Company has not recorded any unrecognized tax benefits.

 

The Company recognizes interest and penalties related to uncertain tax positions in general and administrative expense. As of December 31, 2014, the Company has not recorded any provisions for accrued interest and penalties related to uncertain tax positions.

 

By statute, tax years 2011–2014 remain open to examination by the major taxing jurisdictions to which the Company is subject to.

 

 

PATHFINDER CELL THERAPY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

(NOTE G) -

Research and License Agreements:

 

[1]	University of Glasgow Agreements

 

Pathfinder, LLC has entered into an agreement for a worldwide exclusive license for technology developed by the University of Glasgow. Under the terms of the license, Pathfinder, LLC 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 $338,000 based on exchange rates in effect on December 31, 2013), payable by the Company over the course of the twelve months. 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 continues to evaluate the potential renewal and terms of future research to be conducted at the University. For the year ended December 31, 2014 and 2013, the Company has incurred expense of approximately $91,000 and $417,000, respectively, under this agreement.

 

[2]	MGH Agreement

 

Pathfinder, LLC 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, Pathfinder, LLC was obligated to pay a royalty ranging from 10 - 20% of all net sales of its 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 year ended December 31, 2013.

 

The Company had recorded a long term payable for its estimated licensing fee obligations under the MGH license agreement. The amounts recorded represented 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 quarter 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.

 

[3]	Yissum Agreement

 

Effective December 1, 2011, the Company’s agreement originally entered into with Yissum Research Development Company of the Hebrew University of Jerusalem (“Yissum”), on June 4, 1991, as amended, was effectively terminated by the exchange of mutual releases, and the Company entered into a new agreement with Yissum relating to the polymer technology that comprised the core technology of the Company prior to the Merger in September 2011 (the “Polymer Technology”).  Pursuant to and in connection with the new agreement, (i) the Company assigned to Yissum all of its right, title and interest in and to the patents and other intellectual property relating to the Polymer Technology; (ii) Yissum granted the Company a worldwide exclusive royalty-bearing license under the applicable Polymer Technology in the following fields (A) for REPEL-CV for cardiac indications (the “REPEL Field”) and (B) for thermo-responsive polymers  to be used for or in direct connection with (1) the Company’s Pathfinder Cells, (2) drugs or biologics for the prevention or treatment of cancer or (3) post surgical adhesion prevention (the “RTG Field”); (iii) the Company agreed to commence a research program relating to the Polymer Technology for which the Company agreed to pay Yissum $40,000; (iv) $150,000 in cash which the Company deposited in escrow in September 2011 in anticipation of entering into of the new agreement with Yissum was released to Yissum and the Company issued to Yissum 1,000,000 shares of its common stock; and (v) the Company exchanged broad mutual releases with Yissum in respect of any prior claims which included any claims by Yissum for accrued and unpaid royalties or other amounts owing under the old agreement.  The Company’s rights under the new agreement are not subject to payment of minimum royalties, as they were under the prior agreement.  The Company’s rights to the Polymer Technology in the RTG Field will be subject to compliance with a development plan which the Company is to provide within an agreed upon time frame and which will be subject to Yissum’s approval.

 

 

PATHFINDER CELL THERAPY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

(NOTE G) -

Research and License Agreements: (continued)

 

[4]	diZerega agreement:

 

The Company is party to an agreement relating to the Polymer Technology with Gere S. diZerega, M.D. whereby the Company is obligated to pay Dr. diZerega a royalty of one percent of all net sales of covered products in any and all countries. The agreement continues until the end of fifteen years from the date of the first commercial sale of such covered product in that country. The Company incurred $1,000 in royalty expense relating to this agreement for the year ended December 31, 2013 and none in 2014.

 

(NOTE H) -

Commitments and Other Matters:

 

[1]	Employment agreement:

 

At December 31, 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 December 31, 2014 and the Company’s salary obligation for 2015 is $82,000.

 

[2]	Lease commitments:

 

The Company has a one year operating lease commitment for office facilities space through June 2015. The operating lease agreement is subject to renewal in annual increments at the option of the Company.  Rent is charged to operating expense on a straight-line basis over the term of lease. Rent expense under the operating lease for the year ended December 31, 2014 was $7,200.

 

(NOTE I) -

Related Parties:

 

Two of Pathfinder, LLC’s founding members, Dr. Richard Franklin and Mr. Joerg Gruber, are directors of the Company  Dr. Franklin, the Company’s CEO and President, is paid a monthly consulting fee. From August 2012 through February 2015, Dr. Franklin’s compensation had been $120,000 per year. Effective March 1, 2015, Dr. Franklin’s annual compensation was reduced to $60,000, to reflect an anticipated increased allocation of his time to the business of Tarix Pharmaceuticals and Tarix Orphan, LLC.  Mr. Gruber, the Company’s Chairman, is Chairman and a director of Clubb Capital Limited, the placement agent for the private placement.

 

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. From time to time since February 2012, the Company has borrowed an additional principal amount of $2,365,000 from Breisgau BioVentures SA, all of which remained outstanding as of December 31, 2014. See Note D[1].

 

The Company’s core technology was originally derived from research conducted at the University of Glasgow.  The Company relies on the University of Glasgow as well as third party laboratories for its research and development activities, all of which is funded by the Company. Intellectual property resulting from activities conducted at the University of Glasgow is owned by the university and licensed to the Company under the terms of a license agreement between the university and the Company.  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 assisted with the Company’s research and development program through the university and effective April, 2014 he provides scientific consulting services to us pursuant to a separate agreement. Under the agreement we pay Dr. Shiels an annual compensation of GBP 30,000 (approximately $47,000 based on exchange rates in effect on December 31, 2014).  Dr. Shiels and Dr. Davies beneficially own 5.7% and 3.8%, respectively, of the outstanding shares of common stock of the Company.

 

 

PATHFINDER CELL THERAPY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

(NOTE J) -

Retirement Plan:

 

The Company has a defined contribution retirement plan which was adopted by the Company (then known as SyntheMed, Inc.) in March 2007 and qualifies under section 401(k) of the Internal Revenue Code. The plan allows all employees, upon commencement of employment, to voluntarily contribute amounts not exceeding the maximum allowed under the Internal Revenue Code. The Company is obligated to make a matching contribution equal to 100% of each employee’s salary deferral contributions made at the rate of 4% of total compensation up to a maximum of $260,000. During the year ended December 31, 2014 and 2013, the Company made matching contributions to the plan in the amount of $4,600 and $4,500 respectively.

 

(NOTE K) –

Nature of Business:

 

Product sales were generated from the SyntheMed business through sales of REPEL-CV.

 

The following table summarizes the Company’s revenues at December 31 (in thousands):

 

		Years Ended December 31,
		2014				2013
		Revenues
Brazil		$	-			$	8
Czech Republic			-				10
Hong Kong			-				6
Russia			-				27
Other countries			-				3
		$	-			$	54

 

(NOTE L) –

Subsequent Events:

 

Subsequent to December 31, 2014, the Company borrowed an additional aggregate principal amount of $185,000, $55,000 of which was from Breisgau BioVentures SA and $130,000 was from another investor. The principal balance (together with accrued interest thereon at the rate of 6% per annum) become due and payable on demand at any time on or after one year from issuance. See Note D[1].

 

 

 

F-19

 

Exhibit 10.5(a)

 

Compensation Arrangement Dr. Richard Franklin

 

Effective March 1, 2015, the annual compensation to which Dr. Richard Franklin is entitled under his consulting agreement with Pathfinder Cell Therapy, Inc. has been reduced to $60,000.

Exhibit 10.12(b)

 

 

 

Pathfinder, LLC
12 Bow Street
Cambridge

MA 02138

USA

 

STRICTLY PRIVATE AND CONFIDENTIAL

28 March 2013

 

Dear Sirs

 

Research Agreement — Extension No. 3

 

We refer to our recent discussions regarding the research agreement between The University Court of the University of Glasgow (the University) and Pathfinder, LLC (now a wholly owned subsidiary of Pathfinder Cell Therapy, Inc., previously known as SyntheMed, Inc.) (the Company) (contract no. 49974/1) dated 23 March 2009, as extended by way of an extension letters from the University to the Company dated 29 March 2011 and 19 April 2012 (the Research Agreement). Terms defined in the Research Agreement will have the same meaning where used herein.

 

The Research Agreement was due to expire on 24 March 2013. The purpose of this letter is to document the parties' agreement to vary the terms of the Research Agreement in order to extend the term of the Research Agreement for a further period of twelve months.

 

Therefore, notwithstanding the date hereof and with effect from 24 March 2013, each of the University and the Company have agreed as follows:

 

1.

The Subsequent Period will be extended for a further period of twelve (12) months (and so the Subsequent Period will now expire on 23 March 2014);

2.

The research to be carried out by the University during the extended portion of the Subsequent Period is set out in Appendix 1 to this letter;

3.

In consideration of the research services to be conducted by the University during the extended portion of the Subsequent Period, the Company shall pay to the University the sum of two hundred and five thousand pounds (£205,000). Such sum will be payable in twelve (12) equal instalments monthly in arrears, the first instalment being due on 23 April 2013 and each subsequent instalment being due on the 23rd day of the relevant calendar month. Such sums shall be paid by the Company to the University by way of a bank transfer.

4.

The Research Agreement will continue in full force and effect, as varied by the terms of this letter, unless and until terminated in accordance with its terms.

 

Research Support Office

University of Glasgow

10 The Square

Glasgow

G12 8QQ

 

Email: paul,ellis@glasaow.ac.uk www.glasgow.ac.uk

The University of Glasgow, charity number SC004401

 

 

5.

This letter will be governed by and construed in accordance with the laws of Scotland

 

Please confirm your acceptance of the terms of this letter by signing, dating and returning the enclosed copy hereof.

 

Yours faithfully

 

 

 

For and on behalf of The University Court of the University of Glasgow

 

We accept the terms of the above letter and agree to be bound by its terms:

 

		4/8/13
For and on behalf of Pathfinder, LLC		Date

 

 

2

 

 

Exhibit 10.19

 

CONVERTIBLE PROMISSORY NOTE

 

$__________		Cambridge, Massachusetts
		Date: ___________

 

For value received, the undersigned, Pathfinder Cell Therapy, Inc., a Delaware corporation (the “ Borrower ”), hereby unconditionally promises to pay to the order of _____________ (the “ Payee ”), the principal sum of   $_______   and  00/100   Dollars   ($_________ ), together with interest to maturity (whether by lapse of time, acceleration or otherwise) on the balance of principal remaining from time to time outstanding at a rate per annum equal to 6%. Interest shall be calculated on the basis of a 360-day year and actual days.

 

The outstanding principal amount, together with accrued interest, of this Promissory Note shall become due and payable on the first anniversary of the date hereof.

 

Payee may elect, at any time prior to completion or termination of the Capital Raise (defined below), upon written notice to Borrower, to convert all or a portion of the outstanding principal and/or interest hereof, to shares of common stock of the Borrower, for the subscription price thereof, in the Capital Raise.  “Capital Raise” has the meaning used in that certain agreement and plan of merger dated December 22, 2010 (as amended) by and among Borrower, a wholly-owned subsidiary of Borrower, and Pathfinder, LLC, a Massachusetts limited liability company, pursuant to which Borrower acquired Pathfinder, LLC in a merger transaction, the initial closing of which Capital Raise occurred in September 2011 immediately after the merger. As a condition to any such conversion, Payee shall execute and deliver to Borrower such agreements and documentation as Borrower requires of other investors in the Capital Raise.

 

The Borrower shall have the right to prepay, at any time, all or any portion of the principal indebtedness evidenced by this Note, together with any accrued interest.

 

No failure by the holder of this Note to exercise, and no delay in exercising, any right or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise by such holder of any right or power preclude any other or further exercise thereof or the exercise of any other right or power.  The rights and remedies of the holder hereof as herein specified are cumulative and not exclusive of any other rights or remedies which such holder may otherwise have.

 

The undersigned agrees to pay all costs and expenses incurred by the holder hereof in enforcing this Note, including, without limitation, reasonable attorneys’ fees and disbursements.

 

Every maker, endorser and guarantor of this Note hereby waives presentment, demand and protest, and consents to any and all extensions and other indulgences granted by the holder hereof and agrees that no such extensions or other indulgences granted by the holder, and no discharge or release of any other party primarily or secondarily liable on this Note, or of any collateral securing this Note, shall operate to discharge the indebtedness evidenced by this Note.  If this Note is signed by more than one person, all references to the Borrower shall apply to each of them and their liabilities hereunder shall be joint and several.

 

Any notice of non-payment shall be deemed given when delivered in hand or when mailed, postage prepaid, by certified or registered mail, return receipt requested to the Borrower at 12 Bow Street, Cambridge, Massachusetts 02138 or sent thereto by Federal Express or comparable overnight courier.

 

This Note shall be governed and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed therein (excluding choice of law principles).

 

 

IN WITNESS WHEREOF, the undersigned has executed or caused this Note to be executed under seal as of the year and day first written above.

 

WITNESS		PATHFINDER CELL THERAPY, INC.
		By:
			Richard L. Franklin, CEO

 

 

Schedule of Promissory Notes

 

Date of issuance		Note Holder		Principal amount
February 2, 2012		Falcon Corporate Investments Limited		$	150,000
February 29, 2012		Falcon Corporate Investments Limited		$	170,000
March 15, 2012		Falcon Corporate Investments Limited		$	250,000
April 23, 2012		Falcon Corporate Investments Limited		$	150,000
May 25, 2012		Skye Asset Management SA		$	270,000
June 20, 2012		Ventura, Inc.		$	225,000
July 27, 2012		Ventura, Inc.		$	50,000
August 17, 2012		Breisgau Bio Ventures SA		$	100,000
October 1, 2012		Breisgau Bio Ventures SA		$	200,000
October 23, 2012		Breisgau Bio Ventures SA		$	200,000
November 20, 2012		Breisgau Bio Ventures SA		$	70,000
December 4, 2012		Breisgau Bio Ventures SA		$	70,000
December 21, 2012		Breisgau Bio Ventures SA		$	60,000
January 9, 2013		Breisgau Bio Ventures SA		$	75,000
January 28, 2013		Breisgau Bio Ventures SA		$	130,000
March 4, 2013		Mr. Joerg Gruber		$	100,000
April 2, 2013		Ventura, Inc.		$	150,000
April 29, 2013		Ventura, Inc.		$	150,000
May 28, 2013		Breisgau Bio Ventures SA		$	250,000
June 26, 2013		Breisgau Bio Ventures SA		$	150,000
July 24, 2013		Breisgau Bio Ventures SA		$	170,000
August 24, 2013		Breisgau Bio Ventures SA		$	100,000
September 26, 2013		Breisgau Bio Ventures SA		$	100,000
October 22, 2013		Breisgau Bio Ventures SA		$	135,000
November 22, 2013		Breisgau Bio Ventures SA		$	100,000
December 20, 2013		Breisgau Bio Ventures SA		$	125,000
January 21, 2014		Breisgau Bio Ventures SA		$	105,000
February 24, 2014		Breisgau Bio Ventures SA		$	120,000
March 25, 2014		Breisgau Bio Ventures SA		$	105,000

 

 

Date of issuance		Note Holder		Principal amount
April 24, 2014		Ventura, Inc.		$	100,000
May 28, 2014		Ventura, Inc.		$	120,000
June 5, 2014		Ventura, Inc.		$	30,000
June 26, 2014		Ventura, Inc.		$	50,000
August 5, 2014		Ventura, Inc.		$	50,000
August 21, 2014		Ventura, Inc.		$	100,000
September 25, 2014		Ventura, Inc.		$	80,000
October 24, 2014		Ventura, Inc.		$	35,000
November 28, 2014		Ventura, Inc.		$	60,000
December 30, 2014		Ventura, Inc.		$	50,000
February 2, 2015		Ventura, Inc.		$	75,000
March 5, 2015		Ventura, Inc.		$	55,000
March 27, 2015		Breisgau Bio Ventures SA		$	55,000
		Aggregate Principal amount		$	4,890,000

 

 

4

 

Exhibit 10.20(a)

 

Compensation Arrangement Mr. John Benson

 

Effective March 1, 2015, the annual salary to which Mr. John Benson is entitled under his employment agreement with Pathfinder Cell Therapy, Inc. has been reduced to $73,000. 

 

EXHIBIT 23.1

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

We consent to the incorporation by reference in the Registration Statements of Pathfinder Cell Therapy, Inc. (the "Company") on Form S-3 (Nos. 333-147184, 333-146493 and 333-19195) and Form S-8 (Registration Nos. 333-95127, 333-95129, 333-91386 and 333-134608) of our report (which included explanatory language relating to the Company's ability to continue as a going concern) dated March 31, 2015, on our audits of the consolidated financial statements as of December 31, 2014 and 2013 and for each of the years then ended which report is included in this Annual Report on Form 10-K to be filed on or about March 31, 2015.

 

 

/s/  EisnerAmper LLP

New York, New York

March 31, 2015

EXHIBIT 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.

 

I, Richard L. Franklin, certify that:

 

1.

I have reviewed this annual report on Form 10-K of Pathfinder Cell Therapy, Inc.;

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Dated:  March 31, 2015	By:	/s/ Richard L. Franklin, M.D.
		Richard L. Franklin, M.D.
		CEO and President

 

 

 

EXHIBIT 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.

 

I, John M. Benson, certify that:

 

1.

I have reviewed this annual report on Form 10-K of Pathfinder Cell Therapy, Inc.;

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a  material fact necessary to make the statements made, in light of the circumstances under which such statements  were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

c)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Dated:  March 31, 2015	By:	/s/ John M. Benson
		John M. Benson
		CFO and Treasurer

 

EXHIBIT 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.*

 

In connection with the accompanying Annual Report on Form 10-K of Pathfinder Cell Therapy, Inc. for the year ended December 31, 2014, the undersigned hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that:

 

(1)

such Annual Report on Form 10-K for the year ended December 31, 2014, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2)

the information contained in such Annual Report on Form 10-K for the year ended December 31, 2014, fairly presents, in all material respects, the financial condition and results of operations of Pathfinder Cell Therapy,  Inc.

 

Dated:  March 31, 2015	/s/ Richard L. Franklin, M.D.
	Name: Richard L. Franklin, M.D.
	Title:   CEO and President

 

* A signed original of this written statement required by Section 906, or other document authenticating, acknowledging or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided by Pathfinder Cell Therapy, Inc. and will be retained by Pathfinder Cell Therapy, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

 

 

EXhIBIT 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.*

 

In connection with the accompanying Annual Report on Form 10-K of Pathfinder Cell Therapy, Inc. for the year ended December 31, 2014, the undersigned hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that:

 

(3)

such Annual Report on Form 10-K for the year ended December 31, 2014, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(4)

the information contained in such Annual Report on Form 10-K for the year ended December 31, 2014, fairly presents, in all material respects, the financial condition and results of operations of Pathfinder Cell Therapy, Inc.

 

Dated: March 31, 2015	/s/ John M. Benson
	Name: John M. Benson
	Title: CFO and Treasurer

 

* A signed original of this written statement required by Section 906, or other document authenticating, acknowledging or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided by Pathfinder Cell Therapy, Inc. and will be retained by Pathfinder Cell Therapy, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.