UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

 

FORM SD

Specialized Disclosure Report

 

 

 

 

 

 

Check the appropriate box to indicate the rule pursuant to which this form is being filed, and provide the period to which the information in this form applies:

 

[X] Rule 13p-1 under the Securities Exchange Act (17 CFR 240.13p-1) for the reporting period from January 1 to December 31, 2016.

 

 

 

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SECTION 1 – Conflict Minerals Disclosure

 

Item 1.01 - Conflict Minerals Report

 

Cytori Therapeutics, Inc. has included the Conflict Minerals Report as an exhibit to its Form SD for the period from January 1, 2016 to December 31, 2016. Unless the context otherwise indicates, “Cytori,” “the Company,” “we,” “us” and “our” refer to Cytori Therapeutics, Inc. and its consolidated subsidiaries.

 

For the year 2016, certain of our operations manufactured, or contracted to manufacture, products for which 3TGs, as defined below, are necessary to their functionality or production (“Covered Products”). Conflict minerals are defined in Section 13(p) as (A) cassiterite, columbite-tantalite (coltan), gold, wolframite, and their derivatives, which are limited to tin, tantalum and tungsten (together with gold collectively referred to as 3TGs), or (B) any other mineral or its derivatives determined by the Secretary of State to be financing conflict in the Democratic Republic of Congo ("DRC") or any adjoining country that shares an internationally recognized border with the DRC (the “Covered Countries”). Accordingly, we have conducted a reasonable country of origin inquiry (“RCOI”) that was designed to determine whether any of the 3TGs in our Covered Products originated in the Democratic Republic of the Congo or an adjoining country (Angola, Burundi, the Central African Republic, the Republic of the Congo, Rwanda, South Sudan, Tanzania, Uganda or Zambia), or were from recycled or scrap sources.

 

A summary of our RCOI and steps of due diligence on the source and chain of custody of any 3TGs in our Covered Products, is included in our Conflict Minerals Report, which is filed as Exhibit 1.01 to this Form SD. In addition to this, our Conflict Minerals Report is publicly available on our company website at: www.cytori.com.

 

 

Forward-Looking Statements

The Report contains forward-looking statements which express a belief, expectation or intention, as well as those that are historical fact, are forward-looking statements, including statements relating to our compliance efforts and expected actions.  The words “expects,” “intends,” “plans,” “believes,” and “anticipates” and similar expressions are used to identify these forward-looking statements. These statements are not guarantees of future actions or performance and are subject to various risks, uncertainties and assumptions. Undue reliance should not be placed on these statements, which are only effective as of the date of this report, and the Company undertakes no obligation to publicly update or revise any forward-looking statement.

 

Item 1.02Exhibit.

 

We have filed our Conflict Minerals Report as Exhibit 1.01 to this Form SD.

 

Item 2.01 Exhibits.

 

Exhibit 1.01 – Conflict Minerals Report as required by Item 1.01. of Form SD.

 

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the duly authorized undersigned.

 

 

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EXHIBIT INDEX

 

 

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EXHIBIT 1.01

 

 

 

 

Cytori Therapeutics, Inc.

Conflict Minerals Report

For the Year Ended December 31, 2016

 

Introduction

 

This Conflict Minerals Report has been prepared by management of Cytori for the period from January 1, 2016 to December 31, 2016 (the “Reporting Period”). Unless the context otherwise indicates, "Cytori," "we," "us," the "Company" and "our" mean Cytori Therapeutics, Inc. and its consolidated and combined subsidiaries.

 

This Report is presented to comply with Rule 13p-1 under the Securities Exchange Act of 1934, as amended (the “Rule”). This Rule imposes certain reporting obligations on public companies that manufacture or contract to manufacture products containing conflict minerals that are necessary to the functionality or production of their products. Form SD defines “conflict minerals” as cassiterite, columbite-tantalite, gold, wolframite and their derivatives, which are currently limited to tin, tantalum and tungsten. We identified tin, tantalum, tungsten and gold (“3TGs”) that are necessary to the functionality or production of certain products that we manufactured or contracted to manufacture during the Reporting Period.

 

As described in this report, Cytori has reason to believe that some of the 3TGs present in its supply chain may have originated in the Democratic Republic of the Congo (“DRC”) or an adjoining country (collectively, the “Covered Countries”). Therefore, we performed a reasonable country of origin inquiry (“RCOI”) to determine whether any of the 3TGs in our products originated from the Covered Countries and were not from recycled or scrap sources.  Based on the RCOI, we determined that we may have some suppliers that sourced 3TG from the Covered Countries and we proceeded to conduct due diligence on our supplier base. The results of this due diligence are covered below.

 

Company Overview

Cytori’s strategy is to build a profitable and growing specialty therapeutics company focused on rare and niche opportunities often overlooked by larger companies but requiring breadth of scope, expertise and focus often not possessed by, or available to, smaller companies.  We currently have two therapeutic development platforms and candidate therapeutics in our pipeline that hold promise for millions of patients and significant market potential.

Our current corporate activities fall substantially into one of two key areas related to our two technical therapeutic development platforms: Cytori Cell Therapy^TM and Cytori Nanomedicine^TM.  Our Cytori Cell Therapy, or CCT platform, is based on the scientific discovery that the human adipose or fat tissue compartment is a source of a unique mixed population of stem, progenitor and regenerative cells that may hold substantial promise in the treatment of numerous diseases.  To bring this promise to patients, we are developing the processes and procedures via proprietary hardware- and software-based devices and single-use reagents and consumable sets, to enable doctors to have access to a variety of therapies at the bedside derived fundamentally from each patient’s own adipose tissue. Our lead product candidate is for the treatment of hand manifestations of scleroderma, and we have recently completed a U.S. pivotal clinical trial for this indication using our Habeo^TM Cell Therapy product. We have additional CCT treatments in various stages of development. Further, our CCT platform is the subject of investigator-initiated trials conducted by our partners, licensees and other third parties, some of which are supported by us and/or funded by government agencies and other funding sources.  Currently, we internally manufacture or source our CCT-related products from third parties. We also have obtained regulatory approval to sell some of our CCT products in certain markets outside the United States. In those markets, we have been able to further develop and improve our core technologies, gain expanded clinical experience and data and generate sales.

Our Cytori Nanomedicine platform features a versatile and novel protein-stabilized liposomal nanoparticle technology for drug encapsulation that has thus far provided the foundation to bring two promising drugs into

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early/late stage clinical trials.  By encapsulating certain drugs, we can create both novel compounds and improve the performance via reformulated versions of existing drugs.  Nanoparticle encapsulation is promising because it can help improve the trafficking and metabolism of many drugs, thus potentially enhancing the therapeutic profile and patient benefits.  Our lead drug candidate, ATI-0918 is a generic version of liposomal encapsulated doxorubicin. Liposomal encapsulated doxorubicin is a heavily relied upon chemotherapeutic used in many cancer types on a global basis. Data from a 60-patient European trial indicated that ATI-0918 is bioequivalent to the existing reference listed drug in Europe. The second drug in clinical trials is ATI-1123, a new chemical entity which is a nanoparticle encapsulated form of docetaxel, also a standard chemotherapeutic drug used for many cancers.  A phase I clinical trial has been completed, and we plan to expand this trial to phase II, most likely in conjunction with a development partner.  In addition, we are early in the long-term research and development of encapsulated regenerative medicine drugs, focused first on the treatment of scleroderma and related connective disorders. Finally, in connection with our acquisition of the ATI-0918 and ATI-1123 drug candidates, we have acquired know-how (including proprietary processes and  techniques) and a scalable nanoparticle manufacturing plant in San Antonio, Texas, that we intend to employ to test, validate and eventually manufacture commercial quantities of our nanoparticle drugs.

 

We were initially formed as a California general partnership in July 1996, and incorporated in the State of Delaware in May 1997. We were formerly known as MacroPore Biosurgery, Inc., and before that as MacroPore, Inc. Our corporate offices are located at 3020 Callan Road, San Diego, CA  92121.  Our common stock is currently listed on the Nasdaq Capital Market under the symbol “CYTX.”  Our telephone number is (858) 458-0900. We maintain an Internet website at www.cytori.com.

 

 

Our products

 

We conducted an analysis of our products to determine which of our products were likely to contain 3TGs. We have identified one or more of the 3TGs in certain of our Celution system products, including our Celution 800 system, that are necessary to the functionality or production of such products.

 

Description of RCOI

 

We began our scoping process by extracting a list of our suppliers that provide us with products that may contain one or more of the 3TGs. Once the filtering was completed, we populated the list with contact information and provided the list to our third-party service provider. This supplier list was then uploaded to our third-party provider’s software platform that allows us to store and manage supplier requests and documentation.

 

From there, we defined our scoping process even further by ensuring that any service providers, indirect materials suppliers and inactive suppliers were removed. This ensures that all suppliers surveyed provided items to Cytori that were used in final products in the year 2016. At this time, there were no such instances where we determined that particular suppliers should be removed from this year’s scope. However, we will continue to assess our supplier list to ensure that our surveyed suppliers are in scope.

 

Our service provider then conducted the supplier survey portion of the RCOI. This was done by utilizing the Conflict Minerals Reporting Template (the “CMRT”), version 4.10 or higher, developed by the Electronic Industry Citizenship Coalition® and The Global e-Sustainability Initiative. Using the CMRT, suppliers identified through the procedures above were surveyed on their sourcing of the 3TGs that we identified in our products. The CMRT was developed to facilitate disclosure and communication of information regarding smelters that provide material to a company’s supply chain. It includes questions regarding a direct supplier’s conflict minerals policy, its due diligence process, and information about its supply chain such as the names and locations of smelters and refiners as well as the origin of 3TGs used by those facilities.

 

During the supplier survey, suppliers were contacted and asked to complete the CMRT. All communications were tracked and monitored in the software platform. Non-responsive suppliers were contacted a minimum of three times and then were also managed by our service provider’s Supply Chain Team in one on one communications. This included at least two follow-ups in order to encourage their response via CMRTs. To ensure that our suppliers understand our expectations regarding the sourcing of 3TGs, we and our third-party consultant have provided training to suppliers though webinars, videos, documentation, and one-on-one discussions.

 

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The RCOI also included automated data validation on all submitted CMRTs. The goal of data validation is to increase the accuracy of submissions and identify any contradictory answers in the CMRT. All submitted forms are accepted and classified as valid or invalid so that data is still retained. All suppliers who submitted CMRTs that were flagged as “invalid” were contacted to address items such as incomplete data, missing smelter information, or inconsistent answers. All of these communications were monitored and tracked in our service provider’s system for future reporting and transparency. As of May 19, 2017 there were three invalid submissions that were not corrected by suppliers.

 

Based on the RCOI, we determined that we may have some suppliers that sourced 3TGs from the Covered Countries; therefore, we proceeded to conduct due diligence on our supplier base.

 

Due Diligence

 

Design of due diligence

 

We have designed our due diligence procedures based upon the due diligence framework presented by the Organisation for Economic Co-operation and Development (“OECD”) in the publication OECD (2013) Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas: Second Edition, OECD Publishing and the related Supplements for gold and for tin, tantalum and tungsten.

 

Cytori’s conflict minerals due diligence process references the five steps as defined by the Guidance: 1) establishing strong company management systems, 2) identifying and assessing risks in our supply chain, 3) designing and implementing a strategy to respond to identified risks, 4) utilizing independent third-party audits, and 5) publicly reporting on our supply chain due diligence. A summary of the due diligence measures undertaken by Cytori is outlined below.

 

 

Due diligence performed

 

Company Management Systems

 

Internal team; External resources

 

Our due diligence program involves a cross-functional team comprised of relevant personnel throughout our organization, including our chief legal and compliance personnel, our principal purchasing and operations personnel, senior engineering personnel, senior research and development personnel, and other members of executive management and their respective teams as appropriate. Our senior management team and our Board of Directors are given appropriate updates on our Conflict Minerals program.

 

We have also taken on other management systems that include the use of a third-party vendor. Through our vendor’s tool we are able to collect and store supplier data and CMRTs, communicate with suppliers and monitor risks in our supply chain. The use of these tools has allowed us to assist our suppliers in understanding our expectations and requirements and increase the rate of responses we have received from our suppliers to our survey requests.

 

Control systems

 

Controls include, but are not limited to, our Code of Business Conduct and Ethics, which outlines expected behaviors for all Cytori employees and third parties doing business with Cytori, and our policy statement regarding Conflict Minerals. Our Conflict Minerals policy statement is available on our website at www.cytori.com within the “Investor Relations” section under “Corporate Governance Materials.”

 

Supplier engagement

 

With respect to the OECD requirement to strengthen engagement with suppliers, we have utilized the CMRT version 4.10 or higher and a third-party vendor’s software reporting tool for collecting conflict minerals declarations from our supply base. The use of these tools has allowed us to assist our suppliers in understanding our expectations and requirements and increase the rate of responses we have received from our suppliers to our survey requests.

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We have also communicated with suppliers potentially affected by our Conflict Minerals program and related compliance efforts as identified through our RCOI process our expectation that they assist us in complying with our efforts related to our conflict minerals program. This includes obtaining information to support chain of custody of the 3TG identified in our products. Our suppliers are able to access our Conflict Minerals policy statement through the website above or upon request.

Identify and Assess Risks in the Supply Chain

 

It is important to note that Cytori has relied on supplier responses to provide us with the information about the source of 3TGs contained in the parts and components they supply to us. Similarly, our direct suppliers also rely on information provided by their suppliers. This chain of information creates a level of uncertainty and risk related to the accuracy of the information. We will continue to monitor, adapt, and modify our due diligence practices in response to the recognized industry best practices.

 

In accordance with OECD Guidelines, it is important to understand risk levels associated with conflict minerals in the supply chain. Smelters not being certified DRC-Conflict Free pose a significant risk to the supply chain. In the software, risk is classified as High, Medium and Low. This risk rating is generated based on three scoring criteria:

 

 

We also calculate supplier risk based on the chances that the supplier provides 3TG that may originate from Non-Conflict Free sources. The value of this risk is calculated based on the risk ratings of the smelters declared by that supplier on their CMRT.

 

Additionally, suppliers are evaluated on program strength (further assisting in identifying risk in the supply chain). Many companies continue to be in the middle of the process and still have “unknown” as some of the answers. It has been decided that penalizing or failing them for working through the process is likely not the best approach for the initial years of compliance, it does not meet the goals or spirit of the Rule; however, evaluating and tracking the strength of the program does meet the OECD Due Diligence Guidelines and can assist in making key risk mitigation decisions as the program progresses. The criteria used to evaluate the strength of the program are:

 

A. Do you have a policy in place that includes DRC conflict-free sourcing?

E. Have you implemented due diligence measures for conflict-free sourcing?

H. Do you verify due diligence information received from your suppliers?

I. Does your verification process include corrective action management?

 

When suppliers meet or exceed the above criteria, by answering yes to all four questions, they are deemed to have a strong program. When suppliers do not meet those criteria, they are presumed to have a weak program. We store all of this information and will continue to assess our suppliers’ program strength and monitor any improvements or changes.

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Design and Implement a Strategy to Respond to Identified Risks

 

Cytori has established a Conflict Minerals policy statement that outlines our expectations for suppliers. If these expectations are not met, our business relationship with that supplier will be evaluated. For example, if we find that we source 3TGs that directly or indirectly finance or benefit armed groups in the Covered Countries, Cytori will assess the supplier relationship and encourage that supplier to establish an alternative source of the minerals that does not support such conflict. If an alternative source cannot be found or the supplier chooses not to respond to this risk, we will assess whether to continue our relationship with such provider. We have yet to encounter an instance where this type of action was necessary.

 

Carry Out Independent Third Party Audit of Supply Chain Due Diligence at Identified Points in the Supply Chain

 

We do not have a direct relationship with smelters and refiners of Conflict Minerals and therefore do not perform or direct audits of these entities.  In connection with our due diligence, we utilized information made available by the CFSI concerning independent third-party audits of smelters and refiners.

 

Report on Supply Chain Due Diligence

 

This Report, which constitutes our annual report on our due diligence efforts, is available on our website at www.cytori.com within the “Investor Relations” section under “Corporate Governance Materials” and is filed with the SEC.

 

Results of Due Diligence

 

Survey results

 

As of May 19, 2017, we received responses from 76% of our 46 surveyed suppliers for the 2016 year. Of those, 6 claimed no 3TGs and 10 claimed they did have tin, tungsten, tantalum, and/or gold in their products.

 

As described above, Cytori surveys our supply chain and reviews all responses against set criteria that have been developed to determine whether further communication is needed. These criteria include: non-responsiveness, incomplete responses and overall inconsistencies. Those suppliers that provided us with a CMRT were also asked to submit Smelter or Refiner (SOR) information. The results of this are discussed the Smelters and Refiners section below.

 

Smelters and refiners

 

Of the suppliers surveyed, many completed their CMRTs at the company, business unit or entity level. Due to this we are unable to conclude that which 3TGs from which of the processing facilities they listed have actually been included in parts or products that they supplied to us.  Many of the responses provided by a supplier via the CMRT included the names of facilities listed by the suppliers as SORs. The CMRTs submitted by suppliers that do not list at least one smelter for each 3TG claimed on the CMRT are considered invalid and our third-party provider follows up on these, urging suppliers to resubmit the form and include smelter information. That being said, there are still suppliers that are unable to provide SORs used for the materials supplied to us.

 

For all responses that indicated a smelter, our third party consultant compared the facilities listed to the list of smelters maintained by the Conflict-Free Sourcing Initiative (“CFSI”). If a supplier indicated that the facility was certified as “Conflict-Free,” our vendor confirmed that the name was listed by CFSI as a certified smelter. No violations were identified. As of May 19, 2017, we have validated 311 smelters or refiners and we are working to validate the additional smelter/refiner entries from the submitted CMRTs. Of the valid SOR facilities, 245 have been designated as conflict-free by the CFSI and another 12 are in the process of being audited. Appendix A lists the smelters and refiners that the suppliers we surveyed reported as being in their supply chains. We have not listed in Appendix A any smelters or refiners that we have not been able to validate. Appendix B also includes an aggregated list of the potential countries of origin from which the reported facilities collectively source conflict minerals, based on information provided by suppliers and CFSI.

 

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As our suppliers are largely unable to provide us with the information necessary to determine country of origin at the product level, we are unable to provide additional smelter and refiner names and country of origin of the necessary 3TG in this report at this time. We will continue to work with our suppliers to obtain smelter information at the product level.

 

Future Steps to be Taken

 

We expect to continue our efforts to improve our Conflict Minerals program and related due diligence. As we further develop our program and procedures, we intend to take the following steps to mitigate the risk that any of the 3TGs contained in our products could benefit armed groups in the Covered Countries. These may include, but are not limited to the following:

 

 

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Appendix A

 

The table below lists, as of May 19, 2017, the 311 smelters or refiners identified by our responsive suppliers that may have been used to process the Conflict Minerals necessary to the functionality or production of our products during 2016. As described above, this list may contain more facilities than are actually linked to our products. Alternatively, this list may not include all applicable facilities as not all of our suppliers were able to provide SOR information at this time. Those that have been certified as conflict-free by the CFSI have been noted as such in the final column on the right.

 

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Appendix B: Potential Countries of Origin

 

This list below sets out possible countries of origin of 3TGs used in the manufacture of products containing Conflict Minerals that are necessary to the functionality or production of our products.  These possible countries of origin cannot necessarily be linked to our products.

 

Argentina, Australia, Austria, Belgium, Bolivia, Brazil, Cambodia, Canada, Chile, China, Columbia, Cote D’Ivoire, Czech Republic, Djibouti, Ecuador, Egypt, Estonia, Ethiopia, France, Germany, Guyana, Hungary, India, Indonesia, Ireland, Israel, Japan, Kazakhstan, Laos, Luxembourg, Madagascar, Malaysia, Mongolia, Myanmar, Namibia, Netherlands, Nigeria, Peru, Portugal, Russia, Sierra Leone, Singapore, Slovakia, South Korea, Spain, Suriname, Switzerland, Taiwan, Thailand, United Kingdom, United States, Vietnam, Zimbabwe, Kenya, Mozambique, South Africa, Democratic Republic of the Congo, Angola, Burundi, Central African Republic, Republic of Congo, Rwanda, South Sudan, Tanzania, Uganda, and Zambia.

 

 

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