Pathfinder Cell Therapy (PFND) 10-K/A 2012 FY Annual report (amended)

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K/A

(Amendment No. 2)

(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, 2012

or

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

For the transition period from                   to

Commission file number:  0-20580

Pathfinder Cell Therapy, Inc.

(Exact name of registrant as specified in its charter)

Delaware	14-1745197
(State or other jurisdiction of	(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  x

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  x

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  x    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  x    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.  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. (as defined in Rule 12b-2 of the Exchange Act). Check one:

Large accelerated filer  ¨     Accelerated Filer  ¨    Non-accelerated filer  ¨ Smaller reporting company  x

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

The aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates of the registrant was approximately $12,664,000based on the last reported sale price of the registrant’s common stock as of June 30, 2012.

At March 31, 2013, 667,160,870 shares of registrant’s Common Stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE: None.

Explanatory Note

This Amendment No. 2 on Form 10-K/A (the “Amendment”) amends the Annual Report on Form 10-K for the fiscal year ended December 31, 2012 of Pathfinder Cell Therapy, Inc. (the “Company”, “our”, “us” or “we”) that was originally filed with the Securities and Exchange Commission on April 1, 2013.  The Amendment, which is being filed in response to comments received from the Staff of the Division of Corporation Finance of the Securities and Exchange Commission, reflects the following changes:

· inclusion of the period from inception (November 4, 2008) through December 31, 2012 in the periods audited by an independent registered public accounting firm; and

· reclassification of certain items between general and administrative expenses and research and development expenses for all periods presented.

Except for changes related to the foregoing, the Amendment effects no other changes to our Annual Report on Form 10-K for the year ended December 31, 2012 and 2011. Changes to Item 1. Business appear under “-Research and Development” in the amounts reflected for research and development expense.  Changes to Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations appear under “-Results of Operations” in the amounts reflected for general and administrative expense and research and development expense.

Pathfinder Cell Therapy, Inc.

Table of Contents

Part I	Item 1	Business	3
	Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
	Item 8	Financial Statements and Supplementary Data	35
Part IV	Item 15	Exhibits, Financial Statement Schedules	37
		Signatures	41

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 success of the Company’s early stage 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.

In September 2011, we and a wholly-owned subsidiary engaged in a reverse merger, business combination with Pathfinder, LLC, a private Massachusetts limited liability company (“Pathfinder, LLC”), pursuant to which Pathfinder, LLC became a wholly-owned subsidiary of our company.  We refer to that transaction as the “Merger.”  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 the focus of the business of our company became the business of Pathfinder, LLC.  See “Item 7. Management’s Discussion of Financial Condition and Results of Operations - Merger with Pathfinder, LLC.”

Overview

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

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

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

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

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 have shown efficacy in three different 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 have been administered intravenously. These studies were performed at independent academic centers, 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.

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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.

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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 have been published in the peer reviewed journal Rejuvenation Research, February 2013.

Research and Development

Our core technology was originally derived from research conducted at the University of Glasgow.  Pathfinder relies on the University of Glasgow as well as third party laboratories for its research and development activities, all of which is funded by 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, 2012 and 2011, we incurred $1,084,000 and $1,403,000 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.  We are currently working with third party contract manufacturers to develop definitive manufacturing protocols for cells to be used in clinical studies.

Intellectual Property

We have worldwide exclusive rights to US and foreign patent applications originated from two international application families and three 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, the second relates to the use of Pathfinder Cells in cell therapies to treat cardiac, renal and other diseases, and the third relates to an improved cell growth and culture technology characterized by reduced telomere attrition.  We intend to convert the three provisionals into PCT or non-provisional US applications.  With the exception of the US provisional applications related to microvescicles and cell growth technology, the patent applications licensed from the University of Glasgow comprise our core technology and are important to the development of Pathfhinder Cells as well as to therapies based on those cells.  The application relating to microvesicles would become important if the microvescicles themselves show efficacy.  The cell growth technology patent application covers technology that has potential to be developed independent of the others.  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.

In addition, we have licensed a family of patents and patent applications from the Massachusetts General Hospital which relate to the use of cells for the treatment of diabetes and for the induction of immune tolerance.  We do not believe that this patent and patent application family is important to the development of Pathfinder Cells or therapies based on those cells.  We licensed this technology to enhance our freedom to operate under the technology licensed from the University of Glasgow.  The portfolio includes six issued US patents and various granted and pending foreign counterparts.  The issued US patents relate to nestin-positive pancreatic stem cells and their therapeutic use in treating diabetes mellitus and in pre-inducing a state of immune tolerance before organ transplantation.  All six issued US patents are projected to expire in December 2020.

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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 and the founding scientists received membership units in Pathfinder, LLC, which were converted into equity of our company in the Merger. In addition, the University of Glasgow is entitled to receive royalties on sales of products making use of the PCs and related technology.

Our wholly-owned subsidiary, Pathfinder, LLC, also has a worldwide exclusive license for a family of patents and patent applications covering related technology from the Massachusetts General Hospital. Under the license agreement, the hospital is entitled to royalties based on sales of products related to the licensed technology, and additional royalties based on sales of product related to the technology licensed from the University of Glasgow, in each case up to a maximum agreed upon amount.  The hospital is also entitled to periodic license fees in agreed upon amounts through the date of first commercial sale.  Under the license agreement, as amended, in the event Pathfinder, LLC were to be acquired or substantially all of its assets were to be sold, Pathfinder, LLC agreed to pay the hospital 3% of the sale price received.   The Merger qualified as an acquisition of Pathfinder, LLC for purposes of this provision, and its principal member, Breisgau BioVentures SA, satisfied Pathfinder, LLC’s full obligation under this provision by effectively transferring to the hospital a portion of the shares to which it was entitled in the Merger, the transferred portion representing 3% of the Merger share consideration. Our rights under the license agreement are subject to agreed upon development and other milestones. Unless terminated earlier as provided in the license agreement, the license agreement shall remain in effect until the date on which all patents or patent applications covered thereby have expired or been abandoned.

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.

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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.

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  ● 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;

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  ● 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.

SyntheMed Business

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

 Our strategy includes continuing to seek a sale, licensing transaction or other strategic transaction for the assets of the legacy SyntheMed business and maintaining the business on a limited basis without significant development or investment pending any such transaction.

REPEL-CV® Adhesion Barrier

 REPEL-CV is a bioresorbable adhesion barrier film designed to be placed over the surface of the heart at the conclusion of the surgical procedure to reduce the formation of post-operative adhesions.  The significant trauma, bleeding and fluid accumulation in the pericardial cavity during an open heart surgical procedure invariably results in the formation of dense, vascularized adhesions which cause the heart to become attached to the inner surface of the sternum as well as to other vascular structures and organs adjacent to the heart.  These adhesions evolve over time from the initial bridging of fibrin in the form of clots which form from the residual blood present upon the completion of the reconstructive surgical procedure on the heart.  By placing REPEL-CV over the heart, the bridging of the fibrin is blocked and thus the severity of these adhesions is reduced.  The use of REPEL-CV may benefit any patient who could be considered a candidate for subsequent open heart surgery.  We estimate that approximately 15-20% of the total open heart surgical procedures performed in the United States involve patients who have had prior open heart surgery and this percentage is expected to increase as the population ages and life expectancy continues to increase.  The presence of adhesions at the point of reoperation represents a significant complication which increases the risk to the patient and the cost of the procedure.  REPEL-CV is the first product approved by the FDA to address this surgical complication.

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Sales and Marketing

We sell REPEL-CV in the United States through independent representatives and internationally through distributors.  Following the Merger and the change in focus of our business, we no longer devote meaningful resources to marketing activities for REPEL-CV.

Manufacturing

 REPEL-CV is manufactured by a series of three independent contract manufacturers. The contract manufacturers rely on various sources, approved by us, for the raw materials and components. We believe that alternative sources for these raw materials and components are available. We utilize independent testing facilities to evaluate products produced by the manufacturers for quality assurance purposes.

Competition

The anti-adhesion market is characterized by a limited number of products currently on the market with limited (as a percent of total surgical procedures using such products) penetration.  REPEL-CV competes in market segments where clinical efficacy, biocompatibility, ease of use and price are the principal bases of competition.  REPEL-CV is the only anti-adhesion product approved by the FDA for use in open heart surgeries.  We nevertheless encounter competition in the United States from other products like CardioWrap®, a product of Mast Surgical, and licensed, in certain markets, to CryoLife, and Preclude®, a product of WL Gore, which are being used off label to reduce adhesions particularly in staged procedures performed on neonatal patients.  There are a number of other adhesion prevention products, such as Interceed®, a product of Johnson & Johnson, Seprafilm®, a product of Genzyme, CoSeal®, a product of Angiotech Pharmaceuticals, Inc., and Adept®, a product of ML Labs Ltd.. These competitive products are not supported by controlled clinical studies of the type that have been conducted for REPEL-CV through the FDA regulatory process, which, we believe, has contributed to their achieving very limited use.

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Yissum Agreement

On December 1, 2011, we entered into an agreement with Yissum Research Development Company of The Hebrew University of Jerusalem, Ltd. (“Yissum”) relating to the polymer technology that comprises the core technology of our SyntheMed business (the “Polymer Technology”).  The agreement replaces a prior agreement originally entered into with Yissum in 1991 and amended on several occasions, under which we were granted ownership of the Polymer Technology subject to payment of minimum royalties.  Pursuant to and in connection with the new agreement, (i) we assigned to Yissum all of our right, title and interest in and to the patents and other intellectual property relating to the Polymer Technology; (ii) Yissum granted us a worldwide exclusive royalty-bearing license under the Polymer Technology in the following fields (A) for REPEL-CV for cardiac indications and (B) for thermo-responsive polymers to be used for or in direct connection with (1) Pathfinder Cells, (2) drugs or biologics for the prevention or treatment of cancer or (3) post surgical adhesion prevention (the “RTG Field”); (iii) we agreed to fund, and Yissum agreed to conduct, a $40,000 research program relating to the Polymer Technology; (iv) we paid $150,000 in cash to Yissum and we issued to Yissum one million shares of our common stock; and (v) we 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.  Subject to certain conditions, the license granted to us under the new agreement expires, on a country-by-country basis, upon the later of (i) the date of expiration in such country of the last to expire of the relevant licensed patent, (ii) the date of expiration of any exclusivity on the relevant product granted by a regulatory body in such country or (iii) the end of a period of 20 years from the date of first commercial sale in such country.  We are permitted to grant sublicenses in our rights to the Polymer Technology upon certain terms and conditions.  Our rights under the new agreement are not subject to payment of minimum royalties, as they were under the prior agreement.  Our rights to the Polymer Technology in the RTG Field are subject to compliance with a development plan which we are to provide within an agreed upon time frame and which will be subject to Yissum’s approval.

Under the Yissum Agreement, we currently hold a license under eight United States patents, four European patents, one Canadian patent and one Australian patent, relating to methods and compositions for reducing or eliminating post-surgical adhesion formation as well as bioresorbable polymeric compounds and polyurethane polymeric compounds. The patents are scheduled to expire on various dates from July 2016 through July 2021.    The expiration date of the first patent relevant to REPEL-CV is in 2016.  The U.S. patent terms may be extended for a maximum of five years, depending upon the circumstances associated with regulatory approval. Only one patent which covers a marketed product may be term extended. If a patent expires before a product covered by such patent is marketed, patent term extension does not apply.  We have applied for an extension of the expiration date of the United States patent due to expire in July 2016.

Government Regulation

Regulation by FDA. REPEL-CV is classified as a Class III medical device, requiring a PreMarket Approval (“PMA”) application review process prior to commercial distribution in the United States.  In March 2009, the FDA approved REPEL-CV for use in reducing the severity of post-operative adhesions in pediatric patients who are likely to require reoperation via sternotomy.  The approval was consistent with the earlier recommendation in September 2007 of the FDA’s Circulatory System Devices Advisory Panel, which also recommended the development of additional clinical data as a basis for expanding the indicated use to include adult patients. As stipulated in the PMA approval, we must conduct a post-approval safety study in pediatric patients. We have not performed the post-approval study, due to a lack of funding and change in the focus of the business of our company following the Merger.  In August 2009, we obtained direction from the FDA regarding the additional clinical data requirements for the adult indication.  Clearance to commence these clinical studies is subject to submission to and approval by the FDA of an Investigational Device Exemption (“IDE”)  application.  We do not intend to proceed with the IDE application, as funding of the clinical studies will be costly and does not fit with our business strategy following the Merger.

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Foreign Regulation. International sales of medical devices are subject to the regulatory requirements of each country in which the products are sold.  The regulatory review and approval process varies from country to country. Many countries also impose product standards, packaging and labeling requirements and import restrictions on medical devices. In addition, each country has its own tariff regulations, duties and tax requirements.  To date, REPEL-CV has received approval for marketing in a limited number of international markets. In some markets the approval includes the adult indication and in other markets the approval is limited to a pediatric indication similar to the United States marketing approval. In August 2006 we received a CE Mark certification for the use of REPEL-CV in cardiac surgeries, permitting us to market REPEL-CV in the European Union as well as other countries that have adopted the European Union’s regulatory standards.

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, a private biopharmaceutical company of which Dr. Franklin and our Chairman, Mr. Joerg Gruber, are co-founders, 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.

Executive Officers

Our executive officers are as follows:

Name	Age	Positions with the Company
Richard L. Franklin, M.D.	67	Chief Executive Officer, President , Secretary and Director
John Benson	51	Chief Financial Officer and Treasurer

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 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 stem cell engraftment and other oncology related indications. 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.

John Benson has served as CFO and Treasurer of our company since September 2011.  Prior thereto, and since 2006, he 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.

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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. On September 2, 2011, we engaged in the Merger with Pathfinder, LLC, a Massachusetts limited liability company that commenced operations in November 2008. 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 and on the same date as the Merger, we changed our name to Pathfinder Cell Therapy, Inc. and increased the number of our authorized shares of Common Stock from 150 million to one billion.

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.

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

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

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

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

Merger with Pathfinder, LLC

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

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

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

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

Critical Accounting Policies and Estimates

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, uncollectible receivables, inventory valuation allowance, the useful life of intangible assets, valuation of stock-based compensation 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.

                Recent Accounting Pronouncements

In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income, an amendment to FASB ASC Topic 220, “Comprehensive Income”.  The update gave companies the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  The amendments in the update do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income.  ASU 2011-05 was effective for the Company for fiscal years, and interim periods within those years, beginning after December 15, 2011.  In December 2011, the FASB issued ASU 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.  This update stated that the specific requirement in ASU 2011-05 to present items that are reclassified from other comprehensive income to net income alongside their respective components of net income and other comprehensive income will be deferred.  In February 2013, the FASB issued ASU 2013-02, Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income.  This update requires companies to present the effects on the line items of net income of significant reclassifications out of accumulated other comprehensive income if the amount being reclassified is required under U.S. generally accepted accounting principles to be reclassified in its entirety to net income in the same reporting period.  ASU 2013-02 is effective prospectively for the Company for fiscal years, and interim periods within those years, beginning after December 15, 2012.  The Company does not expect the adoption of the amended guidance to have a significant impact on its financial statements. The Company’s comprehensive loss is equal to its net loss for all periods presented, and, as a result, no statement of comprehensive loss has been included in the consolidated financial statements.

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Results of Operations

Revenue and cost of goods sold comparisons to the prior year are not meaningful as the prior year does not include results of operations for the SyntheMed business prior to the merger date of September 2, 2011.  See Note F[1] of Notes to Consolidated Financial Statements for a discussion of revenues and net loss on a pro forma basis for 2011 assuming the Merger had occurred on January 1, 2011.

Revenues for 2012 were $114,000, compared to $73,000 for 2011, an increase of 56.1% or $41,000 of which approximately 88% was attributable to customers outside the United States. The Company’s revenues are derived from the sale of REPEL-CV.  Pathfinder, LLC has not generated any revenue since inception.

Cost of goods sold for 2012 was $50,000 compared to $26,000 for 2011, an increase of 92.3% or $24,000. Cost of goods sold reflects raw material costs and the cost of processing and packaging REPEL-CV into saleable form.

Research and development expenses totaled $1,084,000 for 2012, compared to $1,403,000 for 2011, a decrease of 23% or $319,000. The decrease is primarily attributable to decreases in spending on pre-GMP services for cell development and production for use in pre-clinical animal models of $639,000, and decreased consulting fees of $4,000, offset by increased fees under the research agreement with the University of Glasgow of $217,000 and increased expenses incurred for the legacy SyntheMed business of $115,000.

General and administrative expenses totaled $1,015,000 for 2012, compared to $2,232,000 for 2011, a decrease of 55% or $1,217,000. The decrease is primarily attributable to the recording of a merger related licensing fee of $687,000 in the prior year, decreases in stock based compensation expense of $514,000, investor relations expenses of $66,000, consulting fees of $64,000, travel related expenses of $47,000 and professional fees of 59,000, offset by increased salary related expenses of $102,000, increased Board of Director expenses of $54,000, and increased insurance expense of $77,000.

We incurred sales and marketing expenses of $25,000 for 2012, compared to $30,000 for 2011, a decrease of 16.6% or $5,000.  Comparisons to the prior year are not meaningful as the prior year does not include results of operations for the SyntheMed business prior to the merger date of September 2, 2011. The Company’s sales and marketing expenses are related to the sale of REPEL-CV.

We recorded an impairment loss of $8,127,000 in 2011. This amount was attributable to the goodwill generated by the deemed purchase of the SyntheMed assets in the Merger. An impairment analysis using a discounted cash flow method was performed and a determination made to record an impairment charge for the full amount of the recorded asset. There was no comparable amount for 2012.

 Net interest expense totaled $96,000 for 2012 compared to $108,000 for 2011, a decrease of 11.1% or $12,000. The decrease is primarily attributable to interest charges related to lower balances of short term convertible notes payable to the Pathfinder investors in the current year.

 We realized other income from the reversal of allowances for notes receivable from SyntheMed, Inc. of $459,000 for 2011. There was no comparable amount for the current year. As a result of the Merger, all amounts loaned by Pathfinder, LLC to our company (SyntheMed, Inc.) prior to the Merger (totaling $1,343,000) were automatically forgiven.  As of September 30, 2011, we reversed an allowance which was established to reserve for 100% of this note and accrued interest balances due in the amount of $1,343,000 at September 30, 2011. This reversal resulted in a net adjustment of $459,000 for 2011.

During 2011, we also realized other income of $88,000 (net) from the reversal of a liability for accrued royalty expense associated with the old Yissum agreement. Under the new agreement entered into with Yissum in December 2011, Yissum released us from any obligation to pay royalties under the old agreement. In addition, during 2011 we also realized other income of $36,000 from a reversal of accrued interest on the notes forgiven by our company (then SyntheMed, Inc.) in connection with the Merger. There was no comparable amount for the current year.

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We incurred a net loss of $2,156,000 for 2012, compared to $11,270,000 for 2011, a decrease of 80.9% or $9,114,000.  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, 2012 we had cash and cash equivalents of $9,000, compared to $196,000 at December 31, 2011.

At December 31, 2012 we had negative working capital of $2,826,000, compared to negative working capital of $710,000 at December 31, 2011.

Net cash used in operating activities was $2,024,000 for 2012, compared to $2,330,000 for 2011.  Net cash used in operating activities for the current year period was primarily comprised of a net loss of $2,156,000, combined with a decrease in accounts payable of $167,000 offset by decreases in accounts receivable, inventory and prepaid expenses totaling $180,000,   an increases in accrued expenses of $87,000 and the impact of $32,000 in non-cash charges. Net cash used in operating activities for the prior year was primarily comprised of a net loss of $11,270,000, offset by decreases in accounts receivable, interest receivable, inventory and prepaid expenses totaling $135,000, increases in accounts payable and accrued expenses totaling $28,000 and the impact of $8,777,000 in non-cash charges mainly related to the Merger. Of these non-cash charges, $459,000 was for the reversal for allowance of notes and interest receivable, $88,000 was for the reversal of a liability for accrued royalty expense associated with the old Yissum agreement and $36,000 was for the reversal of a liability associated with accrued interest on the notes forgiven by our company (then SyntheMed, Inc.) in connection with the Merger offset by $8,127,000 of goodwill impairment losses related to the Merger, stock based compensation charges of $527,000,  and the  $687,000 cost of the 3% fee funded in stock by our principal stockholder to Massachusetts General Hospital in accordance with the MGH license agreement in respect of the Merger consideration. 

Net cash used in investing activities for 2011 was $835,000. These amounts represent short-term loans provided by Pathfinder, LLC to our company (SyntheMed, Inc.)  at various times prior to the Merger and beginning in September 2010.  For 2011, the amount is net of $14,000 in cash acquired in the Merger. Upon the Merger, all amounts borrowed by us from Pathfinder, LLC (together with accrued interest thereon) were automatically forgiven. There was no comparable amount for 2012.

Net cash provided by financing activities for 2012 was $1,837,000, compared to $3,346,000 for the prior year.  The current year amount is comprised of $1,965,000 of proceeds from short term notes payable, offset by $128,000 in payments of insurance notes payable for the financing of our product liability insurance premiums and our directors’ and officers’ insurance premiums. The 2011 amount is comprised of $1,283,000 of net proceeds from the issuance of common stock and $2,125,000 of proceeds from the issuance of short-term notes, offset by $62,000 paid on a note issued to finance our directors’ and officers’ insurance premiums.

Recent Financings

Immediately following the Merger and as contemplated thereby, on September 2, 2011 we completed the initial closing of a private placement (the “Capital Raise”) in which we sold an aggregate of 89,661,520 shares of our common stock, representing approximately 13.5% of the shares of our common stock outstanding after issuance, at a price of $0.05 per share, for net proceeds of $4,146,000.  Of the proceeds, $1,375,000 was paid in cash, and the balance was paid by conversion of Pathfinder, LLC debt held by investors in Pathfinder, LLC, as contemplated by the Merger Agreement. The converted debt was evidenced by promissory notes issued by Pathfinder, LLC between September 2010 and July 2011 to fund its operating costs, including its loans to our company that were cancelled in connection with the Merger.  The notes bore interest at 6% per annum, were due and payable on the earlier to occur of the first anniversary of issuance or the closing of the Merger and were convertible, at the election of the payee, into equity securities of our company for the subscription price thereof in an offering by our company conducted in connection with the Merger.  At December 31, 2012, we owed approximately $96,000 for unpaid accrued interest on the converted notes. Clubb Capital Limited, of which Mr. Joerg Gruber is Chairman, acted as placement agent for the financing and received a commission equal to 7% of the gross proceeds, a portion of which was paid in cash and a portion of which was payable by a note bearing interest at 6% per annum, payable on demand after December 30, 2011.   In addition, Clubb Capital Limited or its designees were granted warrants to purchase up to 6,276,306 shares of our common stock (representing 7% of the number of shares sold in the placement), exercisable at $0.055 per share and expiring September 30, 2016.

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During 2012, we have borrowed from investors an aggregate principal amount of $1,965,000. An additional $305,000 has been borrowed in 2013 through March 31. The borrowings are evidenced by promissory notes bearing interest at 6% per annum.  Principal and interest are due and payable on the first anniversary of issuance.  At any time prior to completion or termination of the Capital Raise, the holders may elect to convert the principal amount of the promissory notes, and/or accrued interest thereon, into shares of our common stock in the Capital Raise at the subscription price thereof.

The cash balance as of December 31, 2012 and the subsequent borrowings through March 2013 are not sufficient to meet our anticipated cash requirements for the next twelve months.  We will need to raise additional funds to support our planned operations.  We plan to raise an additional approximately $0.3 million in the Capital Raise, which would result in total gross proceeds for the Capital Raise, including converted debt, to approximately $7 million.  Even if we are successful in doing so, of which there can be no assurance, we will nevertheless need to raise additional capital to fund our plan of operations.  During the next 12 months, we anticipate spending approximately $1 million on research and development and other activities, assuming we are successful in raising the necessary capital.

 If we are unable to obtain adequate financing on a timely basis, we may be required to delay, reduce the scope of or eliminate one or more of our planned development programs and otherwise limit 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 2012 audited financial statements contains an explanatory paragraph referring to an uncertainty that raises doubt about the our ability to continue as a going concern.

Our principal contractual obligations, which include the obligations of our wholly-owned subsidiary, Pathfinder, LLC, include (i) a commitment to fund a remaining balance of approximately $408,000 for research and development activities through the University of Glasgow through March 2013, (which we anticipate renewing through March 2014 at a cost of approximately $332,000 for the year),and (ii) cumulative license fees anticipated to aggregate $315,000 through 2017 under the license agreement with Massachusetts General Hospital.  If first commercial sale is not achieved by 2017, annual payments of $150,000 will be required thereafter until first commercial sale.

At December 31, 2012, we had an employment agreement with one individual that is scheduled to expire in September 2013, subject to automatic renewal for one-year periods. Pursuant to this agreement, in case of early termination under certain circumstances, our commitment regarding cash severance benefits aggregates $28,000 at December 31, 2012. For a discussion of certain other commitments, see Note I of Notes to Financial Statements.

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-22.

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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.)

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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. (Incorporated by reference to Note M to Notes to Consolidated Financial Statements contained in Item 1 of the Registrant’s report on Form 10-Q for the quarter ended September 30, 2012.)(2)
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	Supply Agreement, dated as of June 12, 2007, between our company and Diagnostic Chemicals Limited, doing business as BioVectra (portions of this exhibit have been redacted and filed separately with the SEC pursuant to a request for confidential treatment). (Incorporated by reference to the Registrant’s report on Form 10-QSB for the quarter ended June 30, 2007.)
10.9	Supply Agreement, dated as of March 29, 2007, between our company and Chem Development Inc. (Portions of this exhibit have been omitted  and filed separately with the SEC pursuant to a request for confidential  treatment).  (Incorporated by reference to the Registrant’s report on Form 10-QSB for the quarter ended March 31, 2007.)
10.10	Supply Agreement, dated as of March 18, 2007, between our company and Surgical Technologies Inc. (portions  of this exhibit have been omitted  and filed separately with the SEC pursuant to a request for confidential  treatment). (Incorporated by reference to the Registrant’s report on Form 10-QSB for the quarter ended March 31, 2007.)
10.11	Revolving Credit and Security Agreement dated September 14, 2010 between Registrant and Pathfinder, LLC. (Incorporated by reference to the Registrant’s report on Form 10-Q for the quarter ended September 30, 2010.)
10.11(a)	Amendment No. 1 dated February 15, 2011 to Revolving Credit and Security Agreement between Registrant and Pathfinder, LLC. (Incorporated by reference to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2010 filed with the Securities and Exchange Commission on March 25, 2011.)
10.11(b)	Amendment No. 2 dated April 14, 2011 to Revolving Credit and Security Agreement between Registrant 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, 2010 filed with the Securities and Exchange Commission on May 2, 2011.)

21

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.)
10.13	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.)
10.14	Exclusive Patent License Agreement dated as of April 13, 2009 between The General Hospital Corporation d/b/a Massachusetts General Hospital and Pathfinder, LLC, including amendment No. 1 dated March 24, 2011. (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.)
10.15	Form of Subscription Agreement for investors in the 2011private 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.)
10.16	Agency Agreement dated August 31, 2011 between Registrant and Clubb Capital Limited, as placement agent. (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 during 2012 and 2013 aggregating $2,270,000 in principal amount through March 31, 2013, including schedule of investors. (Incorporated by reference to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012, filed with the Securities and Exchange Commission on April 1, 2013.)
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)

22

10.20(a)	Compensation arrangement with 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)
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, 2012 and 2011 and the cumulative period from November 4, 2008 (inception) to December 31, 2012, (ii) the Condensed Consolidated Balance Sheets at December 31, 2012 and December 31, 2011, (iii) the Condensed Consolidated Statements of Cash Flows for the years ended December 31, 2012 and 2011 and the cumulative period from November 4, 2008 (inception) to December 31, 2012 and (iv) the Notes to the Condensed Consolidated Financial Statements.  (1)

_____________________

(1)   Filed herewith.

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

23

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 on Form 10-K/A 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, 2014

24

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

F-1

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, 2012 and 2011, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for each of the years then ended and for the period from November 4, 2008 (inception) through December 31, 2012.  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, 2012 and 2011, the consolidated results of its operations, changes in stockholders' equity, and cash flows for each of the years then ended and for the period from November 4, 2008 (inception) through December 31, 2012 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 significant net losses and lack of sufficient financial resources to fund its operations and meet its obligations 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, 2014

F-2

PATHFINDER CELL THERAPY, INC.

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

	December 31,			December 31,
	2012			2011
ASSETS
Current assets:
Cash	$	9		$	196
Accounts receivable		28			54
Inventory		33			51
Prepaid expenses		78			115
Total current assets		148			416
Intangible, net of accumulated amortization		208			227
Machinery, equipment and software, less accumulated depreciation		-			1
TOTAL	$	356		$	644
LIABILITIES AND CAPITAL DEFICIT
Current liabilities:
Accounts payable	$	76		$	243
Accrued expenses (including related party amount
of $370, and $336, respectively)		630			560
Current portion of long term payable		15			5
Insurance note payable		45			74
Note payable - Clubb Capital		244			244
Convertible notes payable (including related party amount
of $700 and $0, respectively)		1,965			-
Total current liabilities		2,975			1,126
Long term payable - net of current portion		232			225
Commitments and other matters (Note M)
Capital deficit:
Preferred stock, $.01 par value; shares authorized -  5,000;
issued and outstanding - none
Common stock, $.001 par value; shares authorized - 1,000,000
issued and outstanding - 667,162 and 667,162 at
December 31, 2012 and 2011, respectively		667			667
Additional paid-in capital		11,823			11,811
Accumulated deficit		(15,341	)		(13,185	)
Total capital deficit		(2,851	)		(707	)
TOTAL	$	356		$	644
See accompanying notes to consolidated financial statements

F-3

PATHFINDER CELL THERAPY, INC.

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

	Year ended						November 4, 2008 (Inception) Through
	December 31,						December 31,
	2012			2011			2012
Revenue
Product sales	$	114		$	73		$	187
Revenue		114			73			187
Cost of goods sold		50			26			76
Gross profit		64			47			111
Operating expenses:
Research and development		1,084			1,403			3,444
General and administrative		1,015			2,232			3,708
Sales and marketing		25			30			55
Goodwill impairment		-			8,127			8,127
Operating expenses		2,124			11,792			15,334
Loss from operations before other income / (expense)		(2,060	)		(11,745	)		(15,223	)
Other income/(expense):
Interest (expense), net		(96	)		(108	)		(242	)
Reversal (provision) for allowance of notes
receivable from SyntheMed, Inc.		-			459			-
Reversal of a liability		-			124			124
Other income/(expense)		(96	)		475			(118	)
Net loss	$	(2,156	)	$	(11,270	)	$	(15,341	)
Net loss per common share-basic and diluted	$	(0.00	)	$	(0.02	)
Weighted average shares outstanding		667,162			526,105
See accompanying notes to consolidated financial statements

F-4

PATHFINDER CELL THERAPY, INC.

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY NOVEMBER 4, 2008 (INCEPTION)

THROUGH DECEMBER 31, 2012

(In thousands)

	Common Stock				Additional			Accumulated
	Shares		Amount		Paid-in Capital			Loss			Total
Cash Contributions*		332,050		332		(332	)		-			0
Net Loss for Period		-		-		-			(32	)		(32	)
Balance, December 31, 2008		332,050		332		(332	)		(32	)		(32	)
Cash Contributions		-		-		430			-			430
Equity Issued for License*		125,950		126		(115	)		-			11
Net Loss		-		-		-			(547	)		(547	)
Balance, December 31, 2009		458,000		458		(17	)		(579	)		(138	)
Cash Contributions		-		-		307			-			307
Net Loss		-		-		-			(1,294	)		(1,294	)
Balance, December 31, 2010		458,000		458		290			(1,873	)		(1,125	)
Opening balance restatement for MGH license (see Note A)		-		-		-			(42	)		(42	)
Issuance of shares in merger transaction — September 2, 2011		114,500		114		5,906			-			6,020
Issuance of shares in a private placement and conversion of notes payable - September 2, 2011 at $0.05 per shares, net of placement costs of $575		89,662		90		3,819			-			3,909
Issuance of warrants to placement agent		-		-		237			-			237
Issuance of shares in settlement of Yissum liability		5,000		5		345			-			350
Shareholder contribution -3% merger fee due to MGH		-		-		687			-			687
Stock-based Compensation		-		-		527			-			527
Net Loss		-		-		-			(11,270	)		(11,270	)
Balance, December 31, 2011		667,162		667		11,811			(13,185	)		(707	)
Stock-based Compensation		-		-		12			-			12
Net Loss		-		-		-			(2,156	)		(2,156	)
Balance, December 31, 2012		667,162		667		11,823			(15,341	)		(2,851	)

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

See accompanying notes to consolidated financial statements

F-5

PATHFINDER CELL THERAPY, INC.

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Year ended						November 4, 2008
	December 31,						(Inception) Through
	2012			2011			December 31, 2012
Cash flows from operating activities:
Net loss	$	(2,156	)	$	(11,270	)	$	(15,341	)
Adjustments to reconcile net loss to
Net cash used in operating activities:
Depreciation and amortization		20			19			71
Stock based compensation relating to options		12			527			539
Shareholder contribution -3% merger fee due to MGH		-			687			687
Goodwill impairment loss		-			8,127			8,127
Reversal for allowance of notes receivable from SyntheMed, Inc.		-			(459	)		-
Reversal of liability		-			(124	)		(124	)
Accretion of long term liability		17			-			17
Changes in operating assets and liabilities:
Decrease in accounts receivable		26			47			73
Decrease in interest receivable		-			5			-
Decrease in inventory		18			25			43
Decrease  in prepaid expenses		136			58			180
(Decrease) increase in accounts payable		(167	)		3			73
Increase in accrued expenses		70			25			141
Net cash used in operating activities		(2,024	)		(2,330	)		(5,514	)
Cash flows from investing activities:
Acquisition of licenses		-			-			(90	)
Payments for notes receivable		-			(849	)		(1,173	)
Cash acquired from merger		-			14			14
Net cash used in investing activities		0			(835	)		(1,249	)
Cash flows from financing activities:
Net proceeds from the issuance of common stock		-			1,283			1,283
Payments of insurance note payable		(128	)		(62	)		(190	)
Proceeds from convertible notes payable		1,965			2,125			4,942
Contributions from Pathfinder, LLC members		-			-			737
Net cash provided by  financing activities		1,837			3,346			6,772
Net (decrease) increase in cash		(187	)		181			9
Cash at beginning of period		196			15			-
Cash at end of period	$	9		$	196		$	9
Supplementary disclosure of non-cash investing and financing activities:
Members' equity issued for license	$	-		$	-		$	11
Notes receivable and payable through intermediary entity		-			-			130
Long term payable for license		-			94			177
Financing of placement agent commission through notes payable		-			244			244
Financing of insurance premiums through notes payable		99			136			235
Common stock issued in settlement of Yissum liability		-			350			350
Conversion of notes into common stock		-			3,107			3,107
Details of merger with SyntheMed:
Fair value of assets acquired		-			201			201
Liabilities assumed		-			2,322			2,322
Non-cash consideration	$	-		$	6,020		$	6,020

See accompanying notes to consolidated financial statements

F-6

PATHFINDER CELL THERAPY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(NOTE A) - The Company and Going Concern:

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

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

                The 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. For the period from November 4, 2008 (inception) through December 31, 2012, the Company has accumulated a deficit of $15,341,000, including a net loss of $2,156,000 and $11,270,000 for the years ended December 31, 2012 and 2011, 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. As of December 31, 2012, the Company does not anticipate having sufficient cash on hand even when including the proceeds from subsequent borrowings in the aggregate of $305,000 through March 2013 (see Note M), or generating sufficient revenue from operations to meet the Company’s anticipated cash requirements based on its present plan of operations through December 31, 2013, without securing additional funds through the issuance of equity and/or debt. No assurance can be given that additional financing will be available to the Company on acceptable terms or at all.  In the absence of an additional cash infusion, the Company will be unable to continue as a going concern. 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 are generated from the SyntheMed business through sales of REPEL-CV.

F-7

PATHFINDER CELL THERAPY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

[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 and cash equivalents with high credit quality financial institutions and believe any amounts in excess of insurance limitations to be at minimal risk.  Cash and cash equivalents held in these accounts are insured by the Federal Deposit Insurance Corporation up to an unlimited amount through December 31, 2012 and a maximum of $250,000,thereafter.

[4]           Accounts Receivable:

Accounts receivable are stated at estimated net realizable value. Management evaluates the need for an allowance for doubtful accounts based on a combination of historical experience, aging analysis and information on specific accounts. In cases where management is aware of circumstances that may impair a specific customer’s ability to meet its financial obligations, management records a specific allowance against amounts due and reduces the net recognized receivable to the amount that we believe will be collected. For all other customers, the Company maintains a reserve that considers the total receivables outstanding, historical collection rates and economic trends. Account balances are written off when collection efforts have been exhausted and the potential for recovery is considered remote.

[5]           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. 

[6]           Goodwill

Goodwill represents the excess of the value of the purchase consideration over the identifiable assets acquired in the Merger.  Goodwill is tested for impairment annually in the third quarter of each fiscal year. A more frequent evaluation is performed if indicators of impairment are present.

[7]           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.

F-8

PATHFINDER CELL THERAPY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(NOTE B) - Summary of Significant Accounting Policies:  (continued)

[8]           Inventory:

Inventory is stated at the lower of cost or market, as determined by the first-in, first-out method. The Company maintains an allowance for potentially slow moving and obsolete inventories. Management reviews on-hand inventory for potential slow moving and obsolete amounts and estimates the level of inventory reserve accordingly. The Company’s allowance for slow moving and obsolete inventories includes an allowance for out dated raw materials and on-hand finished goods inventory which is within six months of the expiration date. Inventory consisted of the following:

	December 31,
	2012		2011
Raw materials	$	12,000	$	32,000
Finished goods		21,000		19,000
	$	33,000	$	51,000

The production of the Company’s inventory is outsourced to third party facilities located in Ohio, Minnesota and Prince Edward Island, Canada.

[9]           Research and development:

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

[10]         Patent costs:

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

[11]         Use of estimates:

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

[12]         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, 2012 and 2011 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,
	2012		2011
Options		20,950,000		23,826,000
Warrants		15,906,000		16,606,000
		36,856,000		40,432,000

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

F-9

PATHFINDER CELL THERAPY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(NOTE B) - Summary of Significant Accounting Policies:  (continued)

[13]         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.

[14]         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.

[15]         Fair value of financial instruments

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

[16]         Recent Accounting Pronouncements :

In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income, an amendment to FASB ASC Topic 220, “Comprehensive Income”.  The update gave companies the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  The amendments in the update do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income.  ASU 2011-05 was effective for the Company for fiscal years, and interim periods within those years, beginning after December 15, 2011.  In December 2011, the FASB issued ASU 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.  This update stated that the specific requirement in ASU 2011-05 to present items that are reclassified from other comprehensive income to net income alongside their respective components of net income and other comprehensive income will be deferred.  In February 2013, the FASB issued ASU 2013-02, Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income.  This update requires companies to present the effects on the line items of net income of significant reclassifications out of accumulated other comprehensive income if the amount being reclassified is required under U.S. generally accepted accounting principles to be reclassified in its entirety to net income in the same reporting period.  ASU 2013-02 is effective prospectively for the Company for fiscal years, and interim periods within those years, beginning after December 15, 2012.  The Company does not expect the adoption of the amended guidance to have a significant impact on its financial statements. The Company’s comprehensive loss is equal to its net loss for all periods presented, and, as a result, no statement of comprehensive loss has been included in the consolidated financial statements.

[17]         Reclassification:

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

F-10

PATHFINDER CELL THERAPY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

(NOTE C) – Note Receivable – SyntheMed, Inc.:

In connection with and pursuant to the Merger, all amounts loaned by Pathfinder, LLC to the Company, (formerly SyntheMed, Inc.), prior to the Merger totaling $1,343,000 were automatically forgiven. The Company reversed the allowance, including the allowance accrued in fiscal 2011 through the Merger date of $884,000, resulting in a net adjustment of $459,000, included in Other Income (Expense) in the accompanying consolidated financial statements.

(NOTE D) – Intangible Assets:

Intangible assets represent the intellectual property and other rights licensed to Pathfinder, LLC with respect to separate technologies under an agreement with each of the University of Glasgow and the Massachusetts General Hospital (“MGH”).  Intangible assets at each reporting date consisted of the following:

	December 31,
	2012		2011
University of Glasgow	$	53,000	$	53,000
MGH		224,000		224,000
		277,000		277,000
Less accumulated amortization		69,000		50,000
	$	208,000	$	227,000

The Company anticipates amortizing $19,000 per year until 2022, after which there will be an additional amortization expense through April 2023 of $5,900. The Company’s management has determined that the fair value of the licenses exceed the book value and thus no impairment is necessary at December 31, 2012. Amortization expense for the years ended December 31, 2012 and 2011 amounted to $19,000 each year.

[1] University of Glasgow license agreement

In March 2009, Pathfinder, LLC entered into a worldwide exclusive license for the technology relating to Pathfinder Cells (“PCs”) from the University of Glasgow, for cash payments of $42,000 and the issuance to the University of Glasgow and the founding scientists of membership units in Pathfinder, LLC valued at $11,000. In addition, the University of Glasgow will receive royalties on sales of products making use of the PCs and related technology (see Note H[1]).

F-11

PATHFINDER CELL THERAPY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(NOTE D) – Intangible Assets: (continued)

[2]           MGH license agreement

In April 2009, Pathfinder, LLC entered into a worldwide exclusive license for a family of patents and patent applications covering related technology from the Massachusetts General Hospital for cash payments of $48,000 and future licensing fees payable through the first commercial sale date.  Under the agreement, prior to the achievement of first commercial sale, license fees are due to MGH and payable as follows:

Year ending December 31,	Amount
2011	$	5,000	(1	)
2013		10,000
2014		75,000
2015		75,000
2016 and each year thereafter	$	150,000

(1) This amount remains unpaid at December 31, 2012.

The Company has recorded an intangible asset and a corresponding long term payable for its estimated licensing fee obligations under the MGH license agreement. The amounts recorded represent the projected future license fees payable based on the Company’s estimate of the first year of commercial sale, discounted to the present value. 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 estimated useful life.

(NOTE E) – Note Payable:

1]            Convertible Notes Payable:

Since September 2010 and prior to the Merger, Pathfinder, LLC had been funding its operations as well as the operations of 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, 2012, the Company has included an accrual of approximately $96,000 for unpaid accrued interest, and such amount is included in Accrued Expenses in the accompanying consolidated balance sheet.

During 2012, the Company borrowed from investors an aggregate amount of $1,965,000, evidenced by promissory notes bearing interest at 6% per annum.  Principal and interest are due and payable on the first anniversary of issuance.  At any time prior to completion or termination of the Capital Raise, the holder may elect to convert the principal amount of the promissory notes, and/or accrued interest thereon, into shares of the Company’s common stock at a price equal to the subscription price in the Capital Raise (See Note F[2]).

[2]           Insurance Notes Payable:

During 2011, the Company had a short term financing agreement covering $12,400 in aggregate premiums for product liability insurance relating to the SyntheMed business.  The financed amount was payable in four monthly installments each in the amount of $3,200 (including interest at 3.65% per annum) through December 2011.

In September 2011, the Company entered into two short term financing agreements for directors’ and officers’ liability insurance premiums totaling $49,600 and $72,600 and payable in monthly installments including interest of $5,000 and $7,400, respectively. The monthly installments for both notes are due through July, 2012 and carry an interest rate of 3.78% and 3.25% per annum, respectively.

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

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

[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.

F-12

PATHFINDER CELL THERAPY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(NOTE F) – Capital Transaction:

[1]           Merger transaction:

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

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

Fair value of SyntheMed , Inc.’ s common stock	$	5,725,000
Estimated fair value of SyntheMed stock options and stock warrants assumed		295,000
Total Merger consideration	$	6,020,000

The fair value of SyntheMed, Inc.’s common stock used in determining the purchase price was $0.05 per share based on the price per share of the 2011 private placement that occurred immediately after the Merger. The fair value of SyntheMed, Inc.’s stock options and stock warrants was determined using the Black-Scholes option pricing model with the following assumptions:

	September 2,
	2011
Underlying stock price	$	0.05
Expected stock price volatility		64.7% – 128.4	%
Risk-free interest rates		0.2 %– 3.15	%
Weighted average expected life	2.78 years
Expected dividend yield		0

F-13

PATHFINDER CELL THERAPY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(NOTE F) – Capital Transaction: (continued)

[1]    Merger transaction: (continued)

Under the purchase method of accounting, the total purchase price is allocated to the acquired identifiable assets and liabilities assumed based on their estimated fair values as of the merger closing date. The excess of the purchase price over the fair value of assets acquired and liabilities assumed, if any, is allocated to goodwill. During the third quarter of fiscal 2011, the Company performed an impairment analysis for the goodwill generated by the 2011 Merger transaction and determined that the entire carrying amount was impaired by using a discounted cash flow method. As a result, the Company recorded an impairment charge of $8,127,000.

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

Asset Allocation	Value
Accounts receivables	$	101,000
Inventory		76,000
Other assets (A)		37,000
Liabilities assumed (B)		(2,321,000	)
Total identifiable net liabilities		(2,107,000	)
Goodwill		8,127,000
Total fair value of SyntheMed assets and liabilities	$	6,020,000

(A)	Includes cash, prepaid expenses and fixed assets
(B)	Includes $1,343,000 notes payable to Pathfinder LLC  (see Note C)

Acquisition costs incurred by the Company related to the Merger during the twelve months ended December 31, 2011 were approximately $800,000 and were expensed as incurred.

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

	Year ended
	December 31, 2011
	(Unaudited)
Revenues	$	0.2
Net Loss	$	(3.5	)(a)
Basic and diluted net loss per common share	$	0.01
Weighted average shares outstanding		662.2

(a) Pro forma net loss excludes $8.1 million goodwill impairment charge, $0.8 million of Merger costs incurred in 2011 and $0.5 million net gain from reversal of allowance on note receivable, and includes a $0.6 million net loss related to the operations of the SyntheMed business.

F-14

PATHFINDER CELL THERAPY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(NOTE F) – Capital Transaction: (continued)

 [2]          Private Placement:

On September 2, 2011, immediately after the Merger, the Company completed the initial closing of the Capital Raise, a private placement in which it sold an aggregate of 89,661,520 shares of common stock at a price of $0.05 per share, for gross proceeds of $4,483,000.  Of the proceeds, $1,375,000 was paid in cash, and the balance was paid by conversion of Pathfinder, LLC debt held by investors in Pathfinder, LLC (see Note E[1]) as contemplated by the Merger Agreement.  

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

The grant date fair value of the warrants issued to Clubb Capital Limited or its designees was $237,000, using the Black-Scholes pricing on September 2, 2011. The resulting charges did not have an impact on Capital Deficit. The assumptions utilized to determine the fair values are indicated in the following table:

	Year Ended December 31,
	2011
Exercise price at date of grant
for warrants granted during the period	$	0.055
Dividend yield		0	%
Expected volatility		105.3	%
Risk free interest rate		0.88	%
Expected life	5 years

[3]           Other capital transactions related to the Merger:

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

[4]           Shareholder Right Plan:

Effective immediately prior to the Merger, the Rights Agreement dated as of May 20, 2008 between SyntheMed and American Stock Transfer & Trust Company, as amended as of December 22, 2010, expired by its terms.  Accordingly, all preferred share purchase rights applicable under the Rights Agreement to the Company’s outstanding common stock have similarly expired.

F-15

PATHFINDER CELL THERAPY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(NOTE F) – Capital Transaction: (continued)

[5]          Warrants:

As of December 31, 2012, the following warrants were outstanding to purchase up to 15,906,306 shares of the Company’s Common Stock:

9,630,000	exercisable at $0.20 per share which expire on September 30, 2013
6,276,306	exercisable at $0.055 per share which expire on September 30, 2016
15,906,306

[6]           Options:

As a result of the Merger each option to purchase membership interests of Pathfinder, LLC outstanding immediately prior to the Merger was assumed by the Company and converted into an option to purchase Company common stock, the number of underlying shares and exercise price per share being adjusted to reflect the Merger exchange ratio. The options were converted into options to purchase an aggregate of 14,061,000 shares with an exercise price of $0.05 per share.

Additionally, in connection with and as contemplated by the Merger, the Company increased the number of shares authorized for issuance under its 2006 Stock Option Plan to 25,000,000.

At December 31, 2012, the Company has one stock-based compensation plan, the 2006 Stock Option Plan, under which the Company is authorized to issue incentive stock options and non-qualified stock options to purchase up to an aggregate of 25,000,000 shares of common stock. At December 31, 2012, options to purchase 19,969,000 shares of common stock were outstanding pursuant to the 2006 plan, including 14,061,000 options that converted with the Merger, and there were 5,031,000 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, 2012, options to purchase 63,000 shares of Common Stock were outstanding pursuant to the 2000 Plan, options to purchase 718,000 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.

F-16

PATHFINDER CELL THERAPY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(NOTE F) – Capital Transaction: (continued)

[6]           Options: (continued)

A summary of the status of the Company’s stock options as of December 31, 2012 and 2011, 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, 2011		14,061	$	0.05	4.0 Years
Assumed at Merger consummation		8,765		0.42	2.5 Years
Granted		1,000		0.05	9.7 Years
Number of shares under option plans:
Outstanding at December 31, 2011		23,826	$	0.19	3.6 Years		$	0
Cancelled, expired or forfeited		2,876		0.53
Granted		-		-		-
Outstanding at December 31, 2012		20,950	$	0.14	3.3 Years		$	0
Exercisable at December 31, 2012		20,350	$	0.14	3.1 Years
Expected to vest after December 31, 2012		20,850	$	0.14	3.3 Years		$	0

As of December 31, 2012, there was approximately $7,000 of unrecognized stock compensation related to unvested awards (net of estimated forfeitures) expected to be recognized over the next 21 months.

The Company granted 1,000,000 options during the year ended December 31, 2011 of which 250,000 vested immediately. For the year ended December 31, 2011, the Company recorded a charge of $14,000 in general and administrative expense for the fair value of these options. On the Merger date, the Company also has recorded a charge of $513,000 in general and administrative expense for the fair value of the options issued in 2010 by Pathfinder LLC, as these options vested upon the consummation of the Merger. There were no options granted during the year ended December 31, 2012.

The Company has recorded a charge of $12,000 in general and administrative expense for the year ended December 31 2012 for the pro-rata share of the fair value of the unvested options granted during September 2011 that vest through September 2014.

At December 31, 2012, the Company had 100,000 options outstanding which vest upon the achievement of certain performance criteria. These options have a term of 10 years from date of grant and an exercise price of $0.80.

The Company uses the Black-Scholes option pricing model to determine the weighted average fair value of options. The fair value of options at date of grant and the assumptions utilized to determine such values are indicated in the following table:

	Year Ended December 31, 2011
Underlying stock price at date of grant	$	0.05
Dividend yield		0	%
Expected volatility		96.7%-105.3	%
Risk free interest rate		0.88%- 2.08.	%
Expected life	10 years

The following table summarizes information for stock options outstanding at December 31, 2012 (in thousands, except per share data):

F-17

PATHFINDER CELL THERAPY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(NOTE F) – Capital Transaction: (continued)

[6]           Options: (continued)

	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		18,020	3.0 years	$	0.05		17,520	$	0.05
0.30 – 0.85		2,780	4.0 years		0.64		2,680		0.63
1.16		150	3.7 years		1.16		150		1.16
		20,950	3.3 years	$	0.14		20,350	$	0.14

 (NOTE G) - Income Taxes:

At December 31, 2012, we have approximately $38,655,000 of net operating loss carryforwards to offset future federal taxable income and approximately $560,000 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 December 31, 2012 of 2.87%.

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

			Research
			and Development
Year	Net Operating Loss		Tax Credit
2013	$	7,413,000	$	123,000
2018 - 2031		31,242,000		437,000
	$	38,655,000	$	560,000

At December 31, 2012, the Company has net operating loss carryforwards for New Jersey State income tax purposes of approximately $15,128,000 which expire through 2027.

The deferred tax asset, which amounted to $15,012,000 at December 31, 2012, 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 decreased by $1,791,000 in 2012.

F-18

PATHFINDER CELL THERAPY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(NOTE G) - 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:

	2012			2011
Income tax benefit at the federal statutory rate	$	(733,000	)	$	(3,832,000	)
Impairment of non-deductible tax goodwill		-			2,763,000
Expired net operating losses		2,386,000			1,580,000
Change in valuation allowance		(1,791,000	)		(896,000	)
Income from forgiveness of debt		-			(457,000	)
Difference in reporting basis between tax and
accounting due to the Merger transaction		-			332,000
Expired R&D credit		267,000			-
Stock based compensation		4,000			287,000
Company’s obligation paid by shareholder		-			234,000
State and local income tax, net of effect on federal taxes		(128,000	)		(101,000	)
Other		(5,000	)		90,000
	$	0		$	0

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

	2012			2011
Net operating loss carryforward	$	14,052,000		$	15,568,000
Research and development credit carryforward		560,000			816,000
Other		400,000			400,000
		15,012,000			16,802,000
Valuation allowance		(15,012,000	)		(16,802,000	)
	$	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, 2012, 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, 2012, the Company has not recorded any provisions for accrued interest and penalties related to uncertain tax positions.

By statute, tax years 2009–2012 remain open to examination by the major taxing jurisdictions to which we are subject.

F-19

PATHFINDER CELL THERAPY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(NOTE H) - 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 2012, the parties extended the research period for an additional twelve-month period through March 2013 at a cost of approximately GBP 432,000 (approximately $700,000 based on exchange rates in effect on December 31, 2012), payable by the Company over the course of the twelve months. Under the extended agreement, the Company agreed to pay the remaining outstanding balance owed of $408,000 through March, 2013. For the year ended December 31, 2012 and 2011, the Company has incurred expense of approximately $691,000 and $474,000, respectively, under this agreement.

[2]           MGH Agreement

Pathfinder, LLC has entered into an agreement for a worldwide exclusive license for a family of patents covering related technology from the Massachusetts General Hospital (MGH). Under the license agreement, Pathfinder, LLC is 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. The agreement terminates when the last issued patent expires or is abandoned.

[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.

Pursuant to the terms of the Merger, effective December 1, 2011, the Company issued to the former members of Pathfinder, LLC an additional aggregate of 4,000,000 shares of the Company’s common stock to protect against dilution associated with the 1,000,000 share issuance to Yissum described above.   The Company recorded a charge of $350,000 equal to the fair value of the 5,000,000 shares issued to the former Pathfinder, LLC members and to Yissum based on the market price of the Company’s stock on December 1, 2011.  This charge was offset by the reversal of the Yissum Agreement liability as of December 1, 2011 which amounted to $438,000 after the release of the $150,000 escrow amount, for a net gain of $88,000 which is included in Other Income (Expense) in the accompanying consolidated financial statements.

F-20

PATHFINDER CELL THERAPY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(NOTE H) - 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, 2012.

(NOTE I) - Commitments and Other Matters:

[1]           Employment agreement:

At December 31, 2012, the Company had an employment agreement with one individual that is scheduled to expire in September 2013, subject to automatic renewal for one-year periods. Pursuant to this agreement, in case of early termination under certain circumstances, the Company’s commitment regarding cash severance benefits aggregates $28,000 at December 31, 2012 and the Company’s salary obligation for 2013 is $110,000.

[2]           Lease commitments:

The Company has a one year operating lease commitment for office facilities space through June 2013. 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, 2012 was $7,200.

(NOTE J) - Related Parties:

Two of Pathfinder, LLC’s founding members, Dr. Richard Franklin and Mr. Joerg Gruber, have been directors of the Company (formerly SyntheMed, Inc.) since prior to entering the Merger Agreement.  Dr. Franklin, the Company’s CEO and President was SyntheMed’s sole executive officer prior to the Merger. The Company pays Dr. Franklin a monthly consulting fee of $10,000, which amount reflects a reduction, effective August, 2012, from the previous $15,000 per month consulting fee.  Mr. Gruber, the Company’s Chairman, is Chairman and a director of Clubb Capital Limited, the placement agent for the private placement (see Note F[2]).

Between September 2010 and March 2011, Pathfinder, LLC borrowed an aggregate principal amount of $1,357,000 from Breisgau BioVentures SA, an owner of 52.5% of the outstanding membership interests of Pathfinder, LLC prior to the Merger.   Breisgau subsequently converted such principal amount into shares of the Company’s common stock in the Capital Raise. During 2012, the Company borrowed an additional principal amount of $700,000 from Breisgau BioVentures SA, all of which remained outstanding as of December 31, 2012. See Note E[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 assists with the Company’s research and development program through the University of Glasgow and Dr. Davies provides scientific consulting services to the Company.  Dr. Shiels and Dr. Davies beneficially own 5.7% and 3.8%, respectively, of the outstanding shares of common stock of the Company.

F-21

PATHFINDER CELL THERAPY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(NOTE K) - 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 $245,000. During the year ended December 31, 2012 and 2011, the Company made matching contributions to the plan in the amount of $4,400 and $1,800 respectively.

(NOTE L) – Nature of Business:

Product sales are 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,
	2012		2011
	Revenues
United States	$	13	$	7
Brazil		17		-
Columbia		15		-
Italy		2		5
Czech Republic		15		5
Hong Kong		37		54
Russia		15		-
Other countries		-		2
	$	114	$	73

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

(NOTE M) – Subsequent Events:

Bridge Financing

Subsequent to December 31, 2012, the Company borrowed an additional aggregate principal amount of $305,000, of which $205,000 was from Breisgau BioVentures SA (See Note E[1]) and $100,000 from Mr. Joerg Gruber (See Note J) on the same terms as amounts borrowed during the year then ended.

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