Company Quick10K Filing
Quick10K
Cell Source
10-Q 2019-03-31 Quarter: 2019-03-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-K 2017-03-31 Annual: 2017-03-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-04-19 Officers
NOW ServiceNow 50,180
CSGP Costar Group 18,080
AYR Aircastle 1,470
AROC Archrock 1,270
EGRX Eagle Pharmaceuticals 796
RST Rosetta Stone 627
BLRX Biolinerx 53
TNXP Tonix Pharmaceuticals Holding 12
GMER Good Gaming 0
RGRX Regenerx 0
CLCS 2019-03-31
Part I - Financial Information
Item 1. Financial Statements.
Note 1 - Business Organization, Nature of Operations and Basis of Presentation
Note 2- Going Concern and Management Plans
Note 3 - Summary of Significant Accounting Policies
Note 4 - Fair Value
Note 5 - Notes Payable and Convertible Notes Payable
Note 6 - Stockholders' Deficiency
Note 7 - Related Party Transactions
Note 8 - Commitments and Contingencies
Note 9 - Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II - Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits.
EX-10.39A ex10-39a.htm
EX-31 ex31.htm
EX-32 ex32.htm

Cell Source Earnings 2019-03-31

CLCS 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 g8702.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

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: 000-55413
 
CELL SOURCE, INC.
(Exact name of registrant as specified in its charter)

Nevada
 
32-0379665
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
     
57 West 57th Street, Suite 400
New York, New York
 
10019
(Address of principal executive offices)
 
(Zip Code)

Registrant’s telephone number, including area code: (646) 416-7896

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
         
None
 
N/A
 
N/A

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company


Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any news or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

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

As of May 15, 2019, the registrant had 26,077,611 shares of $0.001 par value common stock outstanding.


CELL SOURCE, INC. AND SUBSIDIARY

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2019

TABLE OF CONTENTS
 
PART I - FINANCIAL INFORMATION
 
 
 
 
 
  Item 1. Financial Statements.
 
3
     
Condensed Consolidated Balance Sheets as of
March 31, 2019 (Unaudited) and December 31, 2018
 
3
     
Unaudited Condensed Consolidated Statements of Operations for the
Three Months Ended March 31, 2019 and 2018
 
 
4
     
Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Deficiency for the
Three Months Ended March 31, 2019 and 2018
 
5
     
Unaudited Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2019 and 2018
 
 
6
     
Notes to Unaudited Condensed Consolidated Financial Statements
 
7
 
 
 
  Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
12
 
 
 
  Item 3. Quantitative and Qualitative Disclosures About Market Risk.
 
14
 
 
 
  Item 4. Controls and Procedures.
 
14
 
 
 
PART II - OTHER INFORMATION
 
15
 
 
 
  Item 1. Legal Proceedings.
 
15
 
 
 
Item 1A. Risk Factors.
 
15
     
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
 
15
 
 
 
  Item 3. Defaults Upon Senior Securities.
 
15
 
 
 
  Item 4. Mine Safety Disclosures.
 
15
 
 
 
  Item 5. Other Information.
 
15
 
 
 
  Item 6. Exhibits.
 
16
 
 
 
SIGNATURES
 
17


2


PART I – FINANCIAL INFORMATION
 
Item 1. Financial Statements.
 
CELL SOURCE, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS


     
March 31,
   
December 31,
 
   
2019
   
2018
 
     
(Unaudited)
       
Assets
           
             
Current Assets:
           
Cash
 
$
13,490
   
$
18,934
 
Prepaid expenses
   
34,917
     
38,926
 
Other current assets
   
10,492
     
7,932
 
Total Assets
 
$
58,899
   
$
65,792
 
                 
                 
Liabilities and Stockholders' Deficiency
               
                 
Current Liabilities:
               
Accounts payable
 
$
770,287
   
$
277,786
 
Accrued expenses
   
726,221
     
532,790
 
Accrued expenses - related parties
   
97,000
     
72,000
 
Accrued interest
   
285,025
     
345,948
 
Accrued interest - related parties
   
28,299
     
27,559
 
Accrued compensation
   
616,427
     
587,734
 
Accrued compensation - related party
   
79,603
     
55,083
 
Advances payable
   
175,000
     
100,000
 
Advances payable - related party
   
100,000
     
100,000
 
Notes payable
   
1,063,000
     
1,463,000
 
Notes payable - related parties
   
150,000
     
150,000
 
Convertible notes payable
   
545,000
     
835,000
 
Convertible notes payable - related parties
   
225,000
     
225,000
 
Derivative liabilities
   
147,900
     
200,500
 
Accrued dividend payable
   
161,598
     
13,563
 
Total Liabilities
   
5,170,360
     
4,985,963
 
                 
Commitments and contingencies (Note 8)
   
-
     
-
 
                 
Stockholders' Deficiency:
               
Convertible Preferred Stock, $0.001 par value, 10,000,000 shares authorized; Series A Convertible Preferred Stock,
1,335,000 shares designated, 1,048,989 and 860,291 shares issued and outstanding as of March 31, 2019 and
December 31, 2018, respectively; liquidation preference of $8,029,016 and $6,465,745as of March 31, 2019 and
December 31, 2018, respectively
   
1,048
     
860
 
Common Stock, $0.001 par value, 200,000,000 shares authorized, 26,077,611 shares issued and outstanding as of
March 31, 2019 and December 31, 2018
   
26,078
     
26,078
 
Additional paid-in capital
   
12,990,255
     
11,723,224
 
Accumulated deficit
   
(18,128,842
)
   
(16,670,333
)
Total Stockholders' Deficiency
   
(5,111,461
)
   
(4,920,171
)
                 
Total Liabilities and Stockholders' Deficiency
 
$
58,899
   
$
65,792
 




The accompanying notes are an integral part of these condensed consolidated financial statements.

3


CELL SOURCE, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


     
For the Three Months Ended March 31,
 
   
2019
   
2018
 
Operating Expenses:
           
Research and development
 
$
724,742
   
$
77,616
 
Research and development - related party
   
25,000
     
225,139
 
Selling, general and administrative
   
421,290
     
357,357
 
Total Operating Expenses
   
1,171,032
     
660,112
 
                 
Loss From Operations
   
(1,171,032
)
   
(660,112
)
                 
Other (Expense) Income:
               
Interest expense
   
(76,867
)
   
(30,265
)
Interest expense - related parties
   
(740
)
   
(740
)
Amortization of debt discount
   
-
     
(137,974
)
Amortization of debt discount - related parties
   
-
     
(18,493
)
Change in fair value of derivative liabilities
   
52,600
     
135,400
 
Loss on exchange of notes payable for Series A Convertible Preferred Stock
   
(262,470
)
   
-
 
Total Other Expense
   
(287,477
)
   
(52,072
)
                 
Net Loss
   
(1,458,509
)
   
(712,184
)
                 
Dividend attributable to Series A preferred stockholders
   
(148,035
)
   
(107,496
)
                 
Net Loss Applicable to Common Stockholders
 
$
(1,606,544
)
 
$
(819,680
)
                 
Net Loss Per Common Share - Basic and Diluted
 
$
(0.06
)
 
$
(0.03
)
                 
Weighted Average Common Shares Outstanding -
               
     Basic and Diluted
   
28,121,446
     
27,393,071
 




The accompanying notes are an integral part of these condensed consolidated financial statements.

4


CELL SOURCE, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY

(Unaudited)


   
 
FOR THE THREE MONTHS ENDED MARCH 31, 2019
 
   
 
Convertible Preferred
                           
Total
 
   
 
Stock - Series A
   
Common Stock
   
Additional
   
Accumulated
   
Stockholders'
 
   
 
Shares
   
Amount
   
Shares
   
Amount
   
Paid-In Capital
   
Deficit
   
Deficiency
 
 
                                         
Balance, January 1, 2019
   
860,291
   
$
860
     
26,077,611
   
$
26,078
   
$
11,723,224
   
$
(16,670,333
)
 
$
(4,920,171
)
 
                                                       
Issuance of Series A Convertible
Preferred Stock for cash
   
43,331
     
43
     
-
     
-
     
324,957
     
-
     
325,000
 
 
                                                       
Issuance of Series A Convertible Preferred
Stock in exchange for notes payable
   
145,367
     
145
     
-
     
-
     
1,090,109
     
-
     
1,090,254
 
 
                                                       
Series A Convertible Preferred Stock dividends:
Accrual of earned dividends
   
-
     
-
     
-
     
-
     
(148,035
)
   
-
     
(148,035
)
 
                                                       
Net loss
   
-
     
-
     
-
     
-
     
-
     
(1,458,509
)
   
(1,458,509
)
 
                                                       
Balance, March 31, 2019
   
1,048,989
   
$
1,048
     
26,077,611
   
$
26,078
   
$
12,990,255
   
$
(18,128,842
)
 
$
(5,111,461
)


   
 
FOR THE THREE MONTHS ENDED MARCH 31, 2018
 
   
 
Convertible Preferred
                                   
Total
 
   
 
Stock - Series A
   
Common Stock
   
Additional
   
Accumulated
   
Stockholders'
 
   
 
Shares
   
Amount
   
Shares
   
Amount
   
Paid-In Capital
   
Deficit
   
Deficiency
 
 
                                                       
Balance, January 1, 2018
   
643,790
   
$
644
     
25,349,236
   
$
25,349
   
$
9,969,520
   
$
(14,552,887
)
 
$
(4,557,374
)
 
                                                       
Issuance of Series A Convertible
Preferred Stock for cash
   
6,667
     
6
     
-
     
-
     
49,994
     
-
     
50,000
 
 
                                                       
Series A Convertible Preferred Stock dividends:
Accrual of earned dividends
   
-
     
-
     
-
     
-
     
(107,496
)
   
-
     
(107,496
)
 
                                                       
Net loss
   
-
     
-
     
-
     
-
     
-
     
(712,184
)
   
(712,184
)
 
                                                       
Balance, March 31, 2018
   
650,457
   
$
650
     
25,349,236
   
$
25,349
   
$
9,912,018
   
$
(15,265,071
)
 
$
(5,327,054
)

 


The accompanying notes are an integral part of these condensed consolidated financial statements.

5



CELL SOURCE, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


      
For The Three Months Ended March 31,
 
   
2019
   
2018
 
Cash Flows From Operating Activities:
           
Net loss
 
$
(1,458,509
)
 
$
(712,184
)
Adjustments to reconcile net loss to net cash used in operating activities:
               
Change in fair value of derivative liabilities
   
(52,600
)
   
(135,400
)
Amortization of debt discount
   
-
     
156,467
 
Loss on exchange of notes payable for preferred shares
   
262,470
     
-
 
Stock-based compensation:
               
Warrants
   
33,007
     
-
 
Changes in operating assets and liabilities:
               
Prepaid expenses
   
4,009
     
(47,082
)
Other current assets
   
(2,560
)
   
7,923
 
Accounts payable
   
492,501
     
394
 
Accrued expenses
   
193,431
     
(18,476
)
Accrued expenses - related parties
   
25,000
     
25,000
 
Accrued interest
   
76,861
     
12,220
 
Accrued interest - related parties
   
740
     
740
 
Accrued compensation
   
20,206
     
424
 
Net Cash Used In Operating Activities
   
(405,444
)
   
(709,974
)
                 
Cash Flows From Financing Activities:
               
Proceeds from cash advances
   
75,000
     
-
 
Proceeds from issuance of notes payable
   
-
     
500,000
 
Proceeds from issuance of preferred stock - Series A
   
325,000
     
50,000
 
Net Cash Provided By Financing Activities
   
400,000
     
550,000
 
                 
Net Decrease In Cash
   
(5,444
)
   
(159,974
)
                 
Cash - Beginning of Period
   
18,934
     
371,048
 
                 
Cash - End of Period
 
$
13,490
   
$
211,074
 
                 
Supplemental Disclosures of Cash Flow Information:
               
Cash paid for:
               
Interest
 
$
-
   
$
18,030
 
                 
Non-cash investing and financing activities:
               
Preferred stock issued in exchange for notes and advances payable
 
$
1,090,254
   
$
-
 
Accrual of earned preferred stock dividends
 
$
(148,035
)
 
$
(107,496
)
Warrants and conversion options issued in connection with issuance and extension of notes payable
 
$
-
   
$
49,600
 




The accompanying notes are an integral part of these condensed consolidated financial statements.

6


CELL SOURCE, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


Note 1 - Business Organization, Nature of Operations and Basis of Presentation

Organization and Operations

Cell Source, Inc. (“Cell Source”, “CSI” or the “Company”) is a Nevada corporation formed on June 6, 2012 that is the parent company of Cell Source Limited (“CSL”), a wholly owned subsidiary which was founded in Israel in 2011 in order to commercialize a suite of inventions relating to certain cancer treatments. The Company is a biotechnology company focused on developing cell therapy treatments based on the management of immune tolerance. The Company’s lead prospective product is its patented Veto Cell immune system management technology, which is an immune tolerance biotechnology that enables the selective blocking of immune responses. CSL’s Veto Cell immune system management technology is based on technologies patented, owned, and licensed to CSL by Yeda Research and Development Company Limited, an Israeli corporation ("Yeda") (see Note 7, Related Party Transactions). The Company’s target indications include: lymphoma, leukemia and multiple myeloma through the facilitation of safer and more accessible stem cell (e.g. bone marrow) transplantation acceptance, treatment of end stage kidney disease and other non-malignant organ diseases through improved organ transplantation (broadened donor pool, reduced dependence on post-transplant anti-rejection therapy), and ultimately treating a variety of cancers and non-malignant diseases.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for a fair presentation of the condensed consolidated financial position of the Company as of March 31, 2019 and the condensed consolidated results of its operations and cash flows for the three months ended March 31, 2019 and 2018. The results of operations for the three months ended March 31, 2019 are not necessarily indicative of the operating results for the full year ending December 31, 2019 or any other period. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related disclosures of the Company as of December 31, 2018 and for the year then ended which were included in the Company's Annual Report on Form 10-K that was filed with the Securities and Exchange Commission (“SEC”) on April 1, 2019.

Note 2- Going Concern and Management Plans

During the three months ended March 31, 2019, the Company had not generated any revenues, had a net loss of approximately $1,459,000 and had used cash in operations of approximately $405,000. As of March 31, 2019, the Company had a working capital deficiency of approximately $5,111,000 and an accumulated deficit of approximately $18,129,000. Subsequent to March 31, 2019 and as more fully described in Note 9, Subsequent Events, the Company received aggregate proceeds of $573,308 through the sale of 76,437 shares of Series A Convertible Preferred Stock at $7.50 per share and $70,000 through the issuance of a short term note payable. These conditions raise substantial doubt about the Company’s ability to continue as a going concern within twelve months from the date these financial statements are issued.

The Company is currently funding its operations on a month-to-month basis. While there can be no assurance that it will be successful, the Company is in active negotiations to raise additional capital. The Company’s primary source of operating funds since inception has been equity and debt financings. Management’s plans include continued efforts to raise additional capital through debt and equity financings. There is no assurance that these funds will be sufficient to enable the Company to fully complete its development activities or attain profitable operations. If the Company is unable to obtain such additional financing on a timely basis or, notwithstanding any request the Company may make, if the Company’s debt holders do not agree to convert their notes into equity or extend the maturity dates of their notes, the Company may have to curtail its development, marketing and promotional activities, which would have a material adverse effect on the Company’s business, financial condition and results of operations, and ultimately the Company could be forced to discontinue its operations and liquidate.

The accompanying condensed consolidated financial statements have been prepared in conformity with U.S. GAAP, which contemplate continuation of the Company as a going concern and the realization of assets and satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presented in the financial statements do not necessarily purport to represent realizable or settlement values. The condensed consolidated financial statements do not include any adjustment that might result from the outcome of this uncertainty.

7



Note 3 - Summary of Significant Accounting Policies

Since the date of the Annual Report on Form 10-K for the year ended December 31, 2018, there have been no material changes to the Company’s significant accounting policies.

Loss Per Share

The Company computes basic net loss per share by dividing net loss by the weighted average number of common shares outstanding for the period and excludes the effects of any potentially dilutive securities. Diluted earnings per share includes the dilution that would occur upon the exercise or conversion of all dilutive securities into common stock using the “treasury stock” and/or “if converted” methods, as applicable. Weighted average shares outstanding for the three months ended March 31, 2019 and 2018 includes the weighted average impact of warrants to purchase an aggregate of 2,043,835 shares of common stock because their exercise price was determined to be nominal.

The common stock equivalents associated with the following securities are excluded from the calculation of weighted average dilutive common shares because their inclusion would have been anti-dilutive: 

   
March 31,
 
   
2019
   
2018
 
             
Warrants
 
6,374,157
     
11,915,481
 
Convertible notes
   
1,069,101
     
1,520,732
 
Convertible preferred stock
   
10,489,890
     
6,504,570
 
Total
   
17,933,148
     
19,940,783
 

Convertible notes are assumed to be converted at the rate of $0.75 per common share, which is the conversion price as of March 31, 2019. However, such conversion rates are subject to adjustment under certain circumstances, which may result in the issuance of common shares greater than the amount indicated.

Note 4 - Fair Value
 
The Company determines the estimated fair value of amounts presented in these condensed consolidated financial statements using available market information and appropriate methodologies. However, considerable judgment is required in interpreting market data to develop the estimates of fair value. The estimates presented in the financial statements are not necessarily indicative of the amounts that could be realized in a current exchange between buyer and seller. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. These fair value estimates were based upon pertinent information available as of March 31, 2019 and December 31, 2018 and, as of those dates, the carrying value of all amounts approximates fair value. The Company estimated the fair value of its restricted common stock during the three months ended March 31, 2019 based upon observations of the recent sales of Preferred Stock which is convertible into common stock as well as the thinly traded volume and closing prices of its common stock. The Company obtained a third-party valuation of its common stock as of December 31, 2017, which was also considered in management’s estimation of the fair value of its restricted common stock during the three months ended March 31, 2019.

The Company has categorized its assets and liabilities at fair value based upon the following fair value hierarchy:
 
Level 1
Inputs use quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.
 
Level 2
Inputs use directly or indirectly observable inputs. These inputs include quoted prices for similar assets and liabilities in active markets as well as other inputs such as interest rates and yield curves that are observable at commonly quoted intervals.
 
Level 3
Inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related asset or liability.
 
In instances where inputs used to measure fair value fall into different levels in the above fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest level input that is significant to the valuation. The Company’s assessment of the significance of particular inputs to these fair measurements requires judgment and considers factors specific to each asset or liability.

8



Both observable and unobservable inputs may be used to determine the fair value of positions that are classified within the Level 3 category. As a result, the unrealized gains and losses for assets within the Level 3 category presented in the tables below may include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in historical company data) inputs. The following table summarizes the valuation of the Company’s derivatives by the above fair value hierarchy levels as of March 31, 2019 and December 31, 2018 using quoted prices in active markets for identical assets (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3):

 
       
Quoted Prices
             
         
In Active
   
Significant
       
         
Markets for
   
Other
   
Significant
 
         
Identical
   
Observable
   
Unobservable
 
         
Liabilities
   
Inputs
   
Inputs
 
   
Total
   
(Level 1)
   
(Level 2)
   
(Level 3)
 
                         
Accrued compensation - common stock
 
$
37,500
   
$
-
   
$
-
   
$
37,500
 
Accrued compensation - warrants
   
33,228
     
-
     
-
     
33,228
 
Accrued compensation - warrants - related party
   
79,603
     
-
     
-
     
79,603
 
Derivative liabilities
   
147,900
     
-
     
-
     
147,900
 
                                 
Balance - March 31, 2019
 
$
298,231
   
$
-
   
$
-
   
$
298,231
 
                                 
Accrued compensation - common stock
 
$
37,500
   
$
-
   
$
-
   
$
37,500
 
Accrued compensation - warrants
   
24,741
     
-
     
-
     
24,741
 
Accrued compensation - warrants - related party
   
55,083
     
-
     
-
     
55,083
 
Derivative liabilities
   
200,500
     
-
     
-
     
200,500
 
                                 
Balance - December 31, 2018
 
$
317,824
   
$
-
   
$
-
   
$
317,824
 

Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. The Company’s Level 3 liabilities shown in the above table consist of warrants deemed to be derivative liabilities according to the Company’s sequencing policy in accordance with ASC 815-40-35-12, the conversion option of convertible notes payable, and an accrued obligation to issue warrants and common stock.

The following table provides a summary of the changes in fair value, including net transfers in and/or out, of all Level 3 liabilities measured at fair value on a recurring basis using unobservable inputs during the three months ended March 31, 2019:

   
Accrued
   
Derivative
       
   
Compensation
   
Liabilities
   
Total
 
                   
Balance - December 31, 2018
 
$
117,324
   
$
200,500
   
$
317,824
 
                         
Accrued compensation - warrants
   
8,560
     
-
     
8,560
 
Accrued compensation - warrants - related party
   
24,683
     
-
     
24,683
 
Change in fair value
   
(236
)
   
(52,600
)
   
(52,836
)
Balance - March 31, 2019
 
$
150,331
   
$
147,900
   
$
298,231
 

As of March 31, 2019, the Company had an obligation to issue 150,000 shares of common stock to a service provider. The shares had a fair value of $37,500, which was a component of accrued compensation on the condensed consolidated balance sheets.

9


Assumptions utilized in the valuation of Level 3 liabilities are described as follows:

   
For the Three Months Ended
 
   
March 31,
 
   
2019
   
2018
 
             
Risk-free interest rate
   
2.21% - 2.44
%
   
1.73% - 2.69
%
Expected term (years)
   
0.02 - 5.00
     
0.25 - 5.00
 
Expected volatility
   
110
%
   
110
%
Expected dividends
 
0.00
%
   
0.00
%

The expected term used is the contractual life of the instrument being valued. Since the Company’s stock has not been publicly traded for a sufficiently long period of time or with significant volume, the Company is utilizing an expected volatility based on a review of the historical volatilities, over a period of time, equivalent to the expected life of the instrument being valued, of similarly positioned public companies within its industry. The risk-free interest rate was determined from the implied yields from U.S. Treasury zero-coupon bonds with a remaining term consistent with the expected term of the instrument being valued.
 
Note 5 – Notes Payable and Convertible Notes Payable

During the three months ended March 31, 2019 and 2018, the Company recorded interest expense of $76,867 and $30,265, respectively, and interest expense for related party debt of $740 and $740, respectively.

During the three months ended March 31, 2019 and 2018, the Company recorded amortization of debt discount of $0 and $137,974, respectively, and amortization of debt discount for related party debt of $0 and $18,493, respectively.

As of March 31, 2019 and through the date of this filing, notes payablewith principal amounts totaling $1,983,000 were past dueand are classified as current liabilities on the condensed consolidated balance sheet as of March 31, 2019. Such notes continue to accrue interest and all relevant penalties have been accrued as of March 31, 2019. Of such past due notes payable, a holder of a note with principal amount of $250,000 issued a notice of default. See Note 8, Commitments and Contingencies – Litigation for additional details. The Company is in negotiations with all holders of notes payable to extend the maturity dates of such notes or to convert the principal and accrued interest into equity.

As of March 31, 2019 and December 31, 2018, the Company had $234,580 and $302,974, respectively, of accrued interest and penalties related to notes payable, which is included with accrued interest and accrued interest – related parties on the condensed consolidated balance sheets.

Notes Payable

On March 31, 2019, holders of notes with aggregate principal amounts of $400,000 and aggregate late payment penalties of $40,000 exchanged those notes for 70,400 shares of the Company's Series A Convertible Preferred Stock. The value of the shares issued exceeded the carrying value of the debt and accrued interest and, as more fully discussed in Note 6, Stockholders’ Deficiency - Series A Convertible Preferred Stock, this difference of $88,000 was recorded in the condensed consolidated statement of operations as a loss on exchange of notes payable for Series A Convertible Preferred Stock.

Convertible Notes Payable

On March 31, 2019, holders of notes with aggregate principal amounts of $290,000 and aggregate accrued interest of $97,784 exchanged those notes for 74,967 shares of the Company's Series A Convertible Preferred Stock. The value of the shares issued exceeded the carrying value of the debt and accrued interest and, as more fully discussed in Note 6, Stockholders’ Deficiency - Series A Convertible Preferred Stock, this difference of $174,470 was recorded in the condensed consolidated statements of operations as a loss on exchange of notes payable for Series A Convertible Preferred Stock.

Note 6 – Stockholders’ Deficiency
 
Series A Convertible Preferred Stock

On January 27, 2019, the Board of Directors extended the expiration date of the Private Placement Memorandum (“PPM”) to March 31, 2019 and has authorized two sixty-day extensions beyond that date at management's discretion, under which the Company continues to raise up to $7,500,000 via the sale of up to 1,000,000 shares of Series A Convertible Preferred Stock at $7.50 per share. On March 27, 2019, the Board of Directors extended the expiration date of the PPM to May 30, 2019.

On various dates from January 7, 2019 through March 13, 2019, the Company received proceeds of $325,000 through the sale of 43,331 shares of Series A Convertible Preferred Stock at $7.50 per share.

10



On March 31, 2019, in connection with the exchange of various notes payable, accrued interest and late payment penalties totaling $827,784, the Company issued 145,367 shares of Series A Convertible Preferred Stock under the terms of the PPM with a total value of $1,090,254, as more fully described in Note 5, Notes Payable. As the value of those shares exceeded the carrying value of the note payable, accrued interest and late payment penalties, the difference of $262,470 was recorded in the condensed consolidated statement of operations during the three months ended March 31, 2019 as a loss on exchange of notes payable for Series A Convertible Preferred Stock.

During the three months ended March 31, 2019 and 2018, the Company accrued and recorded Series A Preferred Stock dividends of $148,035 and $107,496, respectively, with an increase in liabilities and a corresponding decrease in additional paid-in capital.

Stock-Based Compensation

During the three months ended March 31, 2019 and 2018, the Company recognized expense of $33,007 and $0, respectively, of stock-based compensation related to warrants. As of March 31, 2019, there was no unrecognized stock-based compensation expense.

Note 7 – Related Party Transactions

In 2011, the Company entered into a Research and License Agreement with Yeda for Veto Cell technology. As Yeda is a founder and a significant shareholder of the Company, it is a related party.

During the three months ended March 31, 2019 and 2018, the Company recorded research and development expense of $25,000 and $225,139, respectively, in connection with the agreement with Yeda.

On January 7, 2018, the Company received proceeds of $50,000 from the Chairman of the Board through the sale of 6,667 shares of Series A Convertible Preferred Stock at $7.50 per share, which amount is included in the issuances disclosed in Note 6, Stockholders’ Deficiency.

Note 8 – Commitments and Contingencies

MD Anderson Agreements

On February 19, 2019, the Company entered into an agreement with The University of Texas M.D. Anderson Cancer Center (“MD Anderson”) for the latter to perform cell production and conduct Phase I/II human clinical trials. In connection with that agreement, the Company committed to fund such work in the amount of approximately $2,000,000 over a two-year period beginning that same date, with payments becoming due as certain specified milestones are met by MD Anderson.

The Company recognized $684,255 and $0 of research and development expenses during the three months ended March 31, 2019 and 2018, respectively, associated with services provided by MD Anderson in the periods, under the two agreements with MD Anderson dated November 2018 and February 2019. As of March 31, 2019, the Company had $559,336 of accrued research and development expenses pursuant to the agreements with MD Anderson, which are included within accrued expenses on the condensed consolidated balance sheet.

Litigation
 
Certain conditions may exist as of the date the condensed consolidated financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company, or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims, as well as the perceived merits of the amount of relief sought or expected to be sought therein.

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s consolidated financial statements. If the assessment indicates that a potential material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability and an estimate of the range of possible losses, if determinable and material, would be disclosed.

In January 2019, the holder of a promissory note in the principal amount of $250,000 due on March 16, 2016 instituted a collection action in the Supreme Court of the State of New York, County of New York. A motion for summary judgement was heard on March 7, 2019 and the Company did not oppose the motion. The Company has had discussion with respect to entering into an agreement providing for a payment plan with the holder of the note, but no agreement has yet been reached.

Loss contingencies considered remote are generally not disclosed, unless they involve guarantees, in which case the guarantees would be disclosed. There can be no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows. As of March 31, 2019 and December 31, 2018, the Company has not accrued any amounts for contingencies.

Note 9 – Subsequent Events
 
Series A Convertible Preferred Stock

On various dates from April 5 to April 30, 2019, the Company received aggregate proceeds of $573,308 through the sale of 76,437 shares of Series A Convertible Preferred Stock at $7.50 per share. Of those amounts, an aggregate of $295,825 was received from two members of the Board of Directors for 39,441 shares of Series A Convertible Preferred Stock.

Note Payable

On May 15, 2019, the Company issued a non-interest-bearing bridge note payable in the principal amount of $70,000 with a term of ten days. Concurrent with the issuance of this note, the Company issued five-year warrants for the purchase of up to 35,000 shares of common stock at $0.75 per share.

11


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
The following discussion and analysis of the condensed consolidated results of operations and financial condition of Cell Source, Inc. ("CSI", “Cell Source”,  the “Company”, “us,” “we,” “our,”) as of March 31, 2019 and for the three months ended March 31, 2019 and 2018 should be read in conjunction with our unaudited financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with our audited financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2018 as filed with the Securities and Exchange Commission (“SEC”) on April 1, 2019.

This Quarterly Report contains forward-looking statements as that term is defined in the federal securities laws. The events described in forward-looking statements contained in this Quarterly Report may not occur. Generally these statements relate to business plans or strategies, projected or anticipated benefits or other consequences of our plans or strategies, projected or anticipated benefits from acquisitions to be made by us, or projections involving anticipated revenues, earnings or other aspects of our operating results. The words “may,” “will,” “expect,” “believe,” “anticipate,” “project,” “plan,” “intend,” “estimate,” and “continue,” and their opposites and similar expressions, are intended to identify forward-looking statements. We caution you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties, risks and other influences, many of which are beyond our control, which may influence the accuracy of the statements and the projections upon which the statements are based. Factors that may affect our results include, but are not limited to, the risks and uncertainties discussed in Item 1A (“Risk Factors”) of our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on April 1, 2019.

Overview

We are a biotechnology company focused on developing cell therapy treatments based on the management of immune tolerance.  Our technology platform has been extensively tested by in vitro studies and confirmed in animal trials. We continue to move forward towards clinical trials as more fully discussed in our Annual Report on Form 10-K for the year ended December 31, 2018 which was filed with the SEC on April 1, 2019.
 
Consolidated Results of Operations
 
Three Months Ended March 31, 2019 Compared with the Three Months Ended March 31, 2018
 
Research and Development

Research and development expense was $749,742 and $302,755 for the three months ended March 31, 2019 and 2018, respectively, an increase of $446,987, or 148%, primarily related to the commencement of research by MD Anderson.
 
Selling, General and Administrative
 
Selling, general and administrative expense was $421,290 and $357,357 for the three months ended March 31, 2019 and 2018, respectively, an increase of $63,933, or 18%, primarily related to increases of approximately $59,000 inauditand professional fees in the 2019 period, approximately $33,000 of stock-based compensation expense, offset by decreases of approximately $27,000 in consulting fees.

Change in Fair Value of Derivative Liabilities

The change in fair value of derivative liabilities for the three months ended March 31, 2019 and 2018 was a gain of $52,600 and $135,400, respectively, primarily due to the warrants and conversion options, which are deemed to be derivative liabilities, either drawing closer to their expiration dates or were no longer outstanding.

Interest Expense

Interest expense for the three months ended March 31, 2019 and 2018 was $77,607 and $31,005, respectively, anincrease of $46,602, or 150%, primarily as a result of penalties of approximately $46,000 due to penalties associated with certain past due notes payable.
 
Amortization of Debt Discount
 
Amortization of debt discount was $0 and $156,467 for the three months ended March 31, 2019 and 2018, respectively, which is associated with warrants and conversion options issued in connection with notes payable.

12



Loss on Exchange of Notes Payable for Series A Convertible Preferred Stock
 
During the three months ended March 31, 2019, we recognized a $262,470 loss on exchange of notes payable for Series A Convertible Preferred Stock. The losses recognized represent the value of the preferred shares in excess of the carrying value of the notes payable.

Liquidity and Going Concern

We measure our liquidity in a number of ways, including the following:
 
   
March 31,
   
December 31,
 
   
2019
   
2018
 
   
(unaudited)
       
             
Cash
 
$
13,490
   
$
18,934
 
Working capital deficiency
 
$
(5,111,461
)
 
$
(4,920,171
)

During the three months ended March 31, 2019, the Company had not generated any revenues, had a net loss of approximately $1,459,000, and used cash in operations of approximately $405,000. As of March 31, 2019, the Company had a working capital deficiency of approximately $5,111,000 and an accumulated deficit of approximately $18,129,000. Subsequent to March 31, 2019, the Company received aggregate proceeds of $573,308 through the sale of 76,437 shares of Series A Convertible Preferred Stock at $7.50 per share and $70,000 through the issuance of a short term note payable. These conditions raise substantial doubt about the Company’s ability to continue as a going concern within twelve months from the date these financial statements are issued.

Our ability to continue our operations is dependent on the execution of management’s plans, which include the raising of capital through the debt and/or equity markets, until such time that funds provided by operations are sufficient to fund working capital requirements. We may need to incur additional liabilities with certain related parties to sustain our existence. If we were not to continue as a going concern, we would likely not be able to realize our assets at values comparable to the carrying value or the fair value estimates reflected in the balances set out in the preparation of our financial statements.
 
There can be no assurances that we will be successful in generating additional cash from equity or debt financings or other sources to be used for operations. Should we not be successful in obtaining the necessary financing to fund our operations, we would need to curtail certain or all operational activities and/or contemplate the sale of our assets, if necessary.
 
During the three months ended March 31, 2019 and 2018, our sources and uses of cash were as follows:
 
Net Cash Used in Operating Activities
 
We experienced negative cash flows from operating activities for the three months ended March 31, 2019 and 2018 in the amounts of approximately $405,000 and $710,000, respectively. The net cash used in operating activities for the three months ended March 31, 2019 was primarily due to cash used to fund a net loss of approximately $1,459,000, adjusted for net non-cash expenses in the aggregate amount of approximately $243,000, partially offset by $810,000 of net cash provided by changes in the levels of operating assets and liabilities. The net cash used in operating activities for the three months ended March 31, 2018 was primarily due to cash used to fund a net loss of approximately $712,000, adjusted for net non-cash expenses in the aggregate amount of approximately $21,000, and by $19,000 of net cash used to fund changes in the levels of operating assets and liabilities.
 
Net Cash Provided by Financing Activities
 
Net cash provided by financing activities for the three months ended March 31, 2019 and 2018 was $400,000 and $550,000, respectively. The net cash provided by financing activities during the three months ended March 31, 2019 was attributable to $325,000 of proceeds from the issuance of Series A preferred stock and $75,000 of proceeds received from cash advances. The net cash provided by financing activities during the three months ended March 31, 2018 was attributable to $500,000 of proceeds from the issuance of notes payable and $50,000 of proceeds received from the issuance of Series A preferred stock.

Off-Balance Sheet Arrangements 

We do not have any off-balance sheet arrangements.
 
13



Critical Accounting Policies and Estimates

For a description of our critical accounting policies, see Note 3, Summary of Significant Accounting Policies, in Part 1, Item 1 of this Quarterly Report on Form 10-Q.
 
Item 3. Quantitative And Qualitative Disclosures About Market Risk.
 
Not applicable.

Item 4. Controls and Procedures.
 
Evaluation of Disclosure Controls and Procedures

Disclosure controls are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, such as this Annual Report, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the Principal Executive and Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Internal controls are procedures which are designed with the objective of providing reasonable assurance that (1) our transactions are properly authorized, recorded and reported; and (2) our assets are safeguarded against unauthorized or improper use, to permit the preparation of our condensed consolidated financial statements in conformity with United States generally accepted accounting principles.

In connection with the preparation of this Quarterly Report, management, with the participation of our Principal Executive and Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) and 15d-15(e)). Based upon that evaluation, our Principal Executive and Financial Officer concluded that, as of March 31, 2019, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

14



PART II – OTHER INFORMATION
 
Item 1. Legal Proceedings.
 
Except as described below, we are not involved in any pending legal proceeding or litigations and, to the best of our knowledge, no governmental authority is contemplating any proceeding to which we are a party or to which any of our properties is subject, which would reasonably be likely to have a material adverse effect on us.

In January 2019, the holder of a promissory note in the principal amount of $250,000 due on March 16, 2016 instituted a collection action in the Supreme Court of the State of New York, County of New York. A motion for summary judgement was heard on March 7, 2019 and the Company did not oppose the motion. The Company has had discussion with respect to entering into an agreement providing for a payment plan with the holder of the note, but no agreement has yet been reached.

Item 1A. Risk Factors.
 
There have been no material changes to the risk factors discussed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2018, which was filed with the SEC on April 1, 2019.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
 
Between January 7, 2019 and March 13, 2019, the Company sold 43,331 shares of Series A Convertible Preferred Stock at an aggregate purchase price of $325,000. The Company relied upon the exemption provided by Section 4(2) of the Securities Act in connection with these transactions.

On March 31, 2019, the Company issued 145,367 shares of Series A Convertible Preferred Stock in exchange for the surrender of notes payable with a total outstanding principal amount and accrued interest and penalties of $827,784. The Company relied upon the exemption provided by Section 3(a)(9) of the Securities Act in connection with this transaction.

On May 15, 2019, the Company issued five-year warrants to purchase 35,000 shares of common stock at an exercise price of $0.75 per share to a purchaser of a note in principal amount of $70,000. The Company relied upon the exemption provided by Section 4(2) of the Securities Act in connection with these transactions.

Between April 5, 2019 and April 30, 2019, the Company sold 76,437 shares of Series A Convertible Preferred Stock at an aggregate purchase price of $573,308. The Company relied upon the exemption provided by Section 4(2) of the Securities Act in connection with these transactions.

Item 3. Defaults Upon Senior Securities.
 
As of March 31, 2019 and through the date of this filing, notes payable and convertible notes payable with face values totaling $1,983,000 were past due and are classified as current liabilities on the condensed consolidated balance sheet as of March 31, 2019.  Such notes continue to accrue interest and all relevant penalties have been accrued as of March 31, 2019. Of such past due notes payable, a holder of a note with principal amount of $250,000 issued a notice of default. See Item 1 above for additional details. We are in negotiations with all holders to extend the maturity dates of such notes or to convert the principal and accrued interest into equity.

Item 4. Mine Safety Disclosures.
 
Not applicable.

Item 5. Other Information.
 
None.

15



Item 6. Exhibits.

Exhibit
       
Number
     
Description
         
10.39(a)
     
Amendment No. 1 to Veto Cell Production and Clinical Trial Program Agreement dated as of April 4, 2019 between Cell Source Limited and The University of Texas M.D. Anderson Cancer Center (1)
31
 
 
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of the Chief Executive Officer and Chief Financial Officer
32
 
*
 
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of the Chief Executive Officer and Chief Financial Officer
101.INS
 
 
 
XBRL Instance Document
101.SCH
 

 
XBRL Schema Document
101.CAL
 
 
XBRL Calculation Linkbase Document
101.DEF
 
 
XBRL Definition Linkbase Document
101.LAB
 
 
XBRL Label Linkbase Document
101.PRE
 
 
XBRL Presentation Linkbase Document


(1)
 
Certain information has been excluded from this exhibit because (i) it is not material and (ii) would be competitively harmful if publicly disclosed.
*
  This certification is being furnished and shall not be deemed "filed" with the SEC for purposes of Section 18 of the Exchange Act, or otherwise be subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.
 

16


SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
CELL SOURCE, INC.
 
 
 
 
 
       
Dated: May 20, 2019
By:
/s/        Itamar Shimrat
 
 
 
Name: Itamar Shimrat
 
 
 
Title:   Chief Executive Officer and
            Chief Financial Officer (Principal
            Executive, Financial and Accounting
            Officer)
 
 


17