Company Quick10K Filing
Cell Source
Price0.55 EPS-0
Shares29 P/E-4
MCap16 P/FCF-9
Net Debt-0 EBIT-4
TEV16 TEV/EBIT-4
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-09-30 Filed 2020-11-13
10-Q 2020-06-30 Filed 2020-08-14
10-Q 2020-03-31 Filed 2020-05-15
10-K 2019-12-31 Filed 2020-03-30
10-Q 2019-09-30 Filed 2019-11-14
10-Q 2019-06-30 Filed 2019-08-14
10-Q 2019-03-31 Filed 2019-05-20
10-K 2018-12-31 Filed 2019-04-01
10-Q 2018-09-30 Filed 2018-11-14
10-Q 2018-06-30 Filed 2018-10-18
10-Q 2018-03-31 Filed 2018-10-18
10-K 2017-12-31 Filed 2018-07-25
10-Q 2017-09-30 Filed 2018-07-25
10-Q 2017-06-30 Filed 2018-07-25
10-K 2017-03-31 Filed 2018-07-25
10-Q 2016-09-30 Filed 2016-11-18
10-Q 2016-06-30 Filed 2016-08-15
10-Q 2016-03-31 Filed 2016-05-13
10-K 2015-12-31 Filed 2016-04-14
10-Q 2015-09-30 Filed 2015-11-16
10-Q 2015-06-30 Filed 2015-08-11
10-Q 2015-03-31 Filed 2015-05-13
10-K 2014-12-31 Filed 2015-03-13
10-Q 2014-09-30 Filed 2014-11-14
10-Q 2014-06-30 Filed 2014-08-19
10-Q 2014-03-31 Filed 2014-04-25
10-K 2013-12-31 Filed 2014-03-25
10-Q 2013-09-30 Filed 2013-11-12
8-K 2019-04-19

CLCS 10Q Quarterly Report

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 - Advances Payable
Note 6 - Notes Payable and Convertible Notes Payable
Note 7 - Stockholders' Deficiency
Note 8 - Related Party Transactions
Note 9 - Commitments and Contingencies
Note 10 - 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-10.54 clcs_ex1054.htm
EX-10.55 clcs_ex1055.htm
EX-10.56 clcs_ex1056.htm
EX-10.57 clcs_ex1057.htm
EX-10.58 clcs_ex1058.htm
EX-10.59 clcs_ex1059.htm
EX-31 clcs_ex31.htm
EX-32 clcs_ex32.htm

Cell Source Earnings 2020-09-30

Balance SheetIncome StatementCash Flow
1.2-1.0-3.3-5.5-7.8-10.02012201420172020
Assets, Equity
0.0-0.3-0.6-1.0-1.3-1.62012201320152017
Rev, G Profit, Net Income
3.72.51.30.2-1.0-2.22012201420172020
Ops, Inv, Fin

10-Q 1 clcs_10q.htm FORM 10-Q clcs_10q.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended September 30, 2020

 

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, NY 10019

(Address of principal executive offices)

 

(646) 416-7896

(Issuer's telephone number)

 

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 November 9, 2020, the registrant had 31,960,419 shares of $0.001 par value common stock outstanding.

 

 

 

 

CELL SOURCE, INC. AND SUBSIDIARY

 

FORM 10-Q

 

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020

 

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION

 

 

 

 

 

 

 

 

Item 1.

Financial Statements.

 

3

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of September 30, 2020 (Unaudited) and December 31, 2019

 

3

 

 

 

 

 

 

 

Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2020 and 2019

 

4

 

 

 

 

 

 

 

Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Deficiency for the Nine Months Ended September 30, 2020 and 2019

 

5

 

 

 

 

 

 

 

Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019

 

7

 

 

 

 

 

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

8

 

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

16

 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

 

20

 

 

 

 

 

 

Item 4.

Controls and Procedures.

 

20

 

 

 

 

 

 

PART II - OTHER INFORMATION

 

 

 

 

 

 

 

 

Item 1.

Legal Proceedings.

 

21

 

 

 

 

 

 

Item 1A.

Risk Factors.

 

21

 

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

 

21

 

 

 

 

 

 

Item 3.

Defaults Upon Senior Securities.

 

22

 

 

 

 

 

 

Item 4.

Mine Safety Disclosures.

 

22

 

 

 

 

 

 

Item 5.

Other Information.

 

22

 

 

 

 

 

 

Item 6.

Exhibits.

 

22

 

 

 

 

 

 

SIGNATURES

 

23

 

 

 
2

Table of Contents

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

CELL SOURCE, INC. AND SUBSIDIARY

 

 

 

 

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

 September 30,

 

 

 December 31,

 

 

 

2020

 

 

2019

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

Cash

 

$ 54,736

 

 

$ 27,908

 

Prepaid expenses

 

 

135,269

 

 

 

57,196

 

Other current assets

 

 

20,324

 

 

 

29,679

 

Total Assets

 

$ 210,329

 

 

$ 114,783

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Deficiency

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$ 376,346

 

 

$ 135,415

 

Accrued expenses

 

 

1,037,866

 

 

 

1,051,961

 

Accrued expenses - related parties

 

 

148,737

 

 

 

195,334

 

Accrued interest

 

 

404,285

 

 

 

426,516

 

Accrued interest - related parties

 

 

183,199

 

 

 

146,491

 

Accrued compensation

 

 

642,401

 

 

 

603,520

 

Advances payable

 

 

225,500

 

 

 

235,500

 

Advances payable - related party

 

 

100,000

 

 

 

100,000

 

Notes payable, net of debt discount of $0 and $1,292,

 

 

 

 

 

 

 

 

as of September 30, 2020 and December 31, 2019, respectively

 

 

1,013,000

 

 

 

1,111,708

 

Notes payable - related parties

 

 

150,000

 

 

 

150,000

 

Convertible notes payable, net of debt discount of $108,451 and

 

 

 

 

 

 

 

 

$1,467 as of September 30, 2020 and December 31, 2019, respectively

 

 

2,492,105

 

 

 

966,533

 

Convertible notes payable - related parties

 

 

225,000

 

 

 

225,000

 

Derivative liabilities

 

 

-

 

 

 

351,900

 

Accrued dividend payable

 

 

230,321

 

 

 

11,846

 

Total Current Liabilities

 

 

7,228,760

 

 

 

5,711,724

 

Convertible notes payable - non-current portion

 

 

-

 

 

 

145,000

 

Total Liabilities

 

 

7,228,760

 

 

 

5,856,724

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 9)

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Stockholders' Deficiency:

 

 

 

 

 

 

 

 

Convertible Preferred Stock, $0.001 par value, 10,000,000 shares 

 

 

 

 

 

 

 

 

authorized; Series A Convertible Preferred Stock, 1,335,000 shares

 

 

 

 

 

 

 

 

designated, 1,342,195 and 1,245,083 shares issued and outstanding

 

 

 

 

 

 

 

 

as of September 30, 2020 and December 31, 2019, respectively;

 

 

 

 

 

 

 

 

liquidation preference of $10,296,784 and $9,349,969
as of September 30, 2020 and December 31, 2019, respectively

 

 

1,342

 

 

 

1,245

 

Common Stock, $0.001 par value, 200,000,000 shares authorized; 

 

 

 

 

 

 

 

 

29,965,043 and 27,076,762 shares issued and outstanding

 

 

 

 

 

 

 

 

as of September 30, 2020 and December 31, 2019, respectively

 

 

29,965

 

 

 

27,077

 

Additional paid-in capital

 

 

17,382,155

 

 

 

15,375,565

 

Accumulated deficit

 

 

(24,431,893 )

 

 

(21,145,828 )

Total Stockholders' Deficiency

 

 

(7,018,431 )

 

 

(5,741,941 )

 

 

 

 

 

 

 

 

 

Total Liabilities and Stockholders' Deficiency

 

$ 210,329

 

 

$ 114,783

 

 

 

 

 

 

 

 

 

 

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

 

 
3

Table of Contents

 

CELL SOURCE, INC. AND SUBSIDIARY

 

 

 

 

 

 

 

 

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

 

 

 

 

 

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 For the Three Months Ended
September 30,

 

 

 For the Nine Months Ended
September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$ 257,546

 

 

$ 1,158,757

 

 

$ 675,017

 

 

$ 2,269,269

 

Research and development - related party

 

 

-

 

 

 

33,333

 

 

 

111,667

 

 

 

83,333

 

General and administrative

 

 

908,099

 

 

 

168,906

 

 

 

2,015,624

 

 

 

909,334

 

Total Operating Expenses

 

 

1,165,645

 

 

 

1,360,996

 

 

 

2,802,308

 

 

 

3,261,936

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss From Operations

 

 

(1,165,645 )

 

 

(1,360,996 )

 

 

(2,802,308 )

 

 

(3,261,936 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other (Expense) Income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(114,040 )

 

 

(53,209 )

 

 

(271,687 )

 

 

(185,993 )

Interest expense - related parties

 

 

(12,827 )

 

 

(49,595 )

 

 

(36,708 )

 

 

(50,889 )

Amortization of debt discount

 

 

(146,109 )

 

 

(3,566 )

 

 

(190,639 )

 

 

(10,095 )

Change in fair value of derivative liabilities

 

 

-

 

 

 

33,500

 

 

 

16,977

 

 

 

118,500

 

Warrant modification expense

 

 

-

 

 

 

(54,100 )

 

 

-

 

 

 

(283,500 )

Loss on exchange of notes payable for Series A Convertible Preferred Stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(262,470 )

Loss on extinguishment of notes payable

 

 

(1,511 )

 

 

-

 

 

 

(134,202 )

 

 

(1,504 )

Gain on exchange of accrued interest for common stock

 

 

132,502

 

 

 

-

 

 

 

132,502

 

 

 

-

 

Gain on forgiveness of accrued expenses

 

 

-

 

 

 

-

 

 

 

-

 

 

 

38,427

 

Total Other Expense

 

 

(141,985 )

 

 

(126,970 )

 

 

(483,757 )

 

 

(637,524 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

 

(1,307,630 )

 

 

(1,487,966 )

 

 

(3,286,065 )

 

 

(3,899,460 )

Dividend attributable to Series A preferred stockholders

 

 

(226,191 )

 

 

(197,911 )

 

 

(649,381 )

 

 

(534,919 )

Net Loss Applicable to Common Stockholders

 

$ (1,533,821 )

 

$ (1,685,877 )

 

$ (3,935,446 )

 

$ (4,434,379 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss Per Common Share - Basic and Diluted

 

$ (0.05 )

 

$ (0.06 )

 

$ (0.13 )

 

$ (0.16 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Common Shares Outstanding -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Basic and Diluted

 

 

31,846,661

 

 

 

28,523,306

 

 

 

30,334,852

 

 

 

28,262,759

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 
4

Table of Contents

 

CELL SOURCE, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020

 

 

 

 Convertible Preferred

 

 

 

 

 

 

 Additional

 

 

 

 

 Total

 

 

 

 Stock - Series A

 

 

 Common Stock

 

 

 Paid-In

 

 

 Accumulated

 

 

 Stockholders'

 

 

 

 Shares

 

 

 Amount

 

 

 Shares

 

 

 Amount

 

 

Capital

 

 

 Deficit

 

 

 Deficiency

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2020

 

 

1,245,083

 

 

$ 1,245

 

 

 

27,076,762

 

 

$ 27,077

 

 

$ 15,375,565

 

 

$ (21,145,828 )

 

$ (5,741,941 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of Series A Convertible

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock for cash

 

 

13,333

 

 

 

13

 

 

 

-

 

 

 

-

 

 

 

99,987

 

 

 

-

 

 

 

100,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series A Convertible Preferred Stock dividends:

Accrual of earned dividends

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(211,305 )

 

 

-

 

 

 

(211,305 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock in connection

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

with extension of notes payable

 

 

-

 

 

 

-

 

 

 

227,500

 

 

 

227

 

 

 

56,648

 

 

 

-

 

 

 

56,875

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reclassification of derivative liabilities to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

equity

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

345,830

 

 

 

-

 

 

 

345,830

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

 

-

 

 

 

-

 

 

 

25,671

 

 

 

26

 

 

 

6,392

 

 

 

-

 

 

 

6,418

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(813,747 )

 

 

(813,747 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2020

 

 

1,258,416

 

 

$ 1,258

 

 

 

27,329,933

 

 

$ 27,330

 

 

$ 15,673,117

 

 

$ (21,959,575 )

 

$ (6,257,870 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of Series A Convertible

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock for cash

 

 

3,333

 

 

 

3

 

 

 

-

 

 

 

-

 

 

 

24,997

 

 

 

-

 

 

 

25,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock in connection

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

with extension of notes payable

 

 

-

 

 

 

-

 

 

 

525,000

 

 

 

525

 

 

 

130,725

 

 

 

-

 

 

 

131,250

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of warrants in connection

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

with issuance of notes payable

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

161,256

 

 

 

-

 

 

 

161,256

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of warrants in connection

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

with issuance of advance payable

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

24,386

 

 

 

-

 

 

 

24,386

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series A Convertible Preferred Stock dividends:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accrual of earned dividends

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(211,885 )

 

 

-

 

 

 

(211,885 )

Payment of dividends in kind

 

 

-

 

 

 

-

 

 

 

574,576

 

 

 

574

 

 

 

430,331

 

 

 

-

 

 

 

430,905

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

 

-

 

 

 

-

 

 

 

1,270,000

 

 

 

1,270

 

 

 

316,230

 

 

 

-

 

 

 

317,500

 

Warrants

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

16,129

 

 

 

-

 

 

 

16,129

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,164,688 )

 

 

(1,164,688 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2020

 

 

1,261,749

 

 

$ 1,261

 

 

 

29,699,509

 

 

$ 29,699

 

 

$ 16,565,286

 

 

$ (23,124,263 )

 

$ (6,528,017 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of Series A Convertible

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock for cash

 

 

80,446

 

 

 

81

 

 

 

-

 

 

 

-

 

 

 

603,266

 

 

 

-

 

 

 

603,347

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock in exchange

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

of accrued interest

 

 

-

 

 

 

-

 

 

 

265,534

 

 

 

266

 

 

 

66,383

 

 

 

-

 

 

 

66,649

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of warrants in connection

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

with issuance of notes payable

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

20,098

 

 

 

-

 

 

 

20,098

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series A Convertible Preferred Stock dividends:

Accrual of earned dividends

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(226,191 )

 

 

-

 

 

 

(226,191 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

103,600

 

 

 

-

 

 

 

103,600

 

Warrants

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

249,713

 

 

 

-

 

 

 

249,713

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,307,630 )

 

 

(1,307,630 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 30, 2020

 

 

1,342,195

 

 

$ 1,342

 

 

 

29,965,043

 

 

$ 29,965

 

 

$ 17,382,155

 

 

$ (24,431,893 )

 

$ (7,018,431 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 
5

Table of Contents

 

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019

 

 

 

 Convertible Preferred

 

 

 

 

 

 

 Additional

 

 

 

 

 Total

 

 

 

 Stock - Series A

 

 

 Common Stock

 

 

 Paid-In

 

 

 Accumulated

 

 

 Stockholders'

 

 

 

 Shares

 

 

 Amount

 

 

 Shares

 

 

 Amount

 

 

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 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of Series A Convertible

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock for cash

 

 

106,437

 

 

 

107

 

 

 

-

 

 

 

-

 

 

 

798,162

 

 

 

-

 

 

 

798,269

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series A Convertible Preferred Stock dividends:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accrual of earned dividends

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(188,973 )

 

 

-

 

 

 

(188,973 )

Payment of dividends in kind

 

 

-

 

 

 

-

 

 

 

401,860

 

 

 

401

 

 

 

300,978

 

 

 

-

 

 

 

301,379

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(952,985 )

 

 

(952,985 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2019

 

 

1,155,426

 

 

$ 1,155

 

 

 

26,479,471

 

 

$ 26,479

 

 

$ 13,900,422

 

 

$ (19,081,827 )

 

$ (5,153,771 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of Series A Convertible

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock for cash

 

 

13,333

 

 

 

14

 

 

 

-

 

 

 

-

 

 

 

99,986

 

 

 

-

 

 

 

100,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series A Convertible Preferred Stock dividends:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accrual of earned dividends

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(197,911 )

 

 

-

 

 

 

(197,911 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

825,100

 

 

 

-

 

 

 

825,100

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,487,966 )

 

 

(1,487,966 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 30, 2019

 

 

1,168,759

 

 

$ 1,169

 

 

 

26,479,471

 

 

$ 26,479

 

 

$ 14,627,597

 

 

$ (20,569,793 )

 

$ (5,914,548 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 
6

Table of Contents

 

CELL SOURCE, INC. AND SUBSIDIARY

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(Unaudited)

 

 

For The Nine Months Ended
September 30,

 

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

Cash Flows From Operating Activities:

 

 

 

 

 

 

Net loss

 

$ (3,286,065 )

 

$ (3,899,460 )

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Change in fair value of derivative liabilities

 

 

(16,977 )

 

 

(118,500 )

Warrant modification expense

 

 

-

 

 

 

283,500

 

Amortization of debt discount

 

 

190,639

 

 

 

10,095

 

Loss on exchange of notes payable for preferred shares

 

 

-

 

 

 

262,470

 

Loss on extinguishment of debt  

 

 

134,202

 

 

 

1,504

 

Gain on forgiveness of accrued expenses

 

 

-

 

 

 

(38,427 )

Gain on exchange of accrued interest for common stock

 

 

(132,502 )

 

 

-

 

Non-cash interest expense - warrants

 

 

60,769

 

 

 

75,769

 

Stock-based compensation:

 

 

 

 

 

 

 

 

Warrants

 

 

263,476

 

 

 

3,684

 

Common stock

 

 

319,396

 

 

 

1,750

 

Options

 

 

103,600

 

 

 

825,100

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses

 

 

(72,687 )

 

 

(1,389 )

Other current assets

 

 

9,355

 

 

 

(20,369 )

Accounts payable

 

 

240,931

 

 

 

170,737

 

Accrued expenses

 

 

(46,990 )

 

 

455,602

 

Accrued expenses - related parties

 

 

(46,597 )

 

 

33,333

 

Accrued interest

 

 

207,889

 

 

 

159,127

 

Accrued interest - related parties

 

 

2,252

 

 

 

1,775

 

Accrued compensation

 

 

51,290

 

 

 

69,827

 

Net Cash Used In Operating Activities

 

 

(2,018,019 )

 

 

(1,723,872 )

 

 

 

 

 

 

 

 

 

Cash Flows From Financing Activities:

 

 

 

 

 

 

 

 

Proceeds from advances payable

 

 

100,000

 

 

 

275,500

 

Proceeds from issuance of notes payable

 

 

100,000

 

 

 

120,000

 

Proceeds from issuance of convertible notes payable [1]

 

 

1,572,500

 

 

 

165,000

 

Proceeds from issuance of Series A Preferred Stock

 

 

728,347

 

 

 

1,223,269

 

Repayment of notes payable

 

 

(200,000 )

 

 

(70,000 )

Repayment of convertible notes payable

 

 

(146,000 )

 

 

-

 

Repayment of advances payable

 

 

(110,000 )

 

 

-

 

Net Cash Provided By Financing Activities

 

 

2,044,847

 

 

 

1,713,769

 

 

 

 

 

 

 

 

 

 

Net Increase (Decrease) In Cash

 

 

26,828

 

 

 

(10,103 )

 

 

 

 

 

 

 

 

 

Cash - Beginning of Period

 

 

27,908

 

 

 

18,934

 

 

 

 

 

 

 

 

 

 

Cash - End of Period

 

$ 54,736

 

 

$ 8,831

 

 

 

 

 

 

 

 

 

 

[1] The amount for the nine months ended September 30, 2020 includes gross proceeds of $1,575,000, less issuance costs of $2,500 deducted directly from the proceeds.

 

 

 

 

 

 

 

 

 

Supplemental Disclosures of Cash Flow Information:

 

 

 

 

 

 

 

 

Cash paid for:

 

 

 

 

 

 

 

 

Interest

 

$ -

 

 

$ -

 

Income taxes

 

$ -

 

 

$ -

 

 

 

 

 

 

 

 

 

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Original issue discount in connection with convertible note payable

 

$ 58,556

 

 

$ 6,000

 

 

 

 

 

 

 

 

 

Common stock issued in connection with payment of Series A Convertible Preferred Stock dividends in-kind

 

$ -

 

 

$ 301,379

 

Preferred stock issued in exchange for notes and advances payable

 

$ -

 

 

$ 1,090,254

 

Accrual of earned preferred stock dividends

 

$ (649,381 )

 

$ (534,919 )

Reclassification of derivative liabilities to equity  

 

$ 345,830

 

 

$ -

 

Issuance of placement agent warrants

 

$ 10,907

 

 

$ -

 

Issuance of common stock as debt discount in connection with extension of notes payable

 

$ 188,125

 

 

$ -

 

Repayment of convertible note payable and accrued interest by third party

 

$ 100,896

 

 

$ 133,488

 

Warrants and conversion options issued in connection with issuance and extension of notes payable

 

$ 181,354

 

 

$ 15,600

 

Warrants issued in connection with issuance of advance payable

 

$ 24,386

 

 

$ -

 

Extinguishment of conversion option in connection with repayment of notes payable

 

$ -

 

 

$ 1,000

 

Issuance of common stock in exchange of accrued interest  

 

$ 66,649

 

 

$ -

 

 

 

 

 

 

 

 

 

 

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

 

 
7

Table of Contents

 

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 8, 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.

 

Risks and Uncertainties

 

In March 2020, the World Health Organization declared the outbreak of a novel strain of coronavirus (“COVID-19”) as a pandemic which continues to spread throughout the United States. The Company is closely monitoring the outbreak of COVID-19 and its impact on the Company’s operations, financial position, cash flows and its industry in general. The Company considered the impact of COVID-19 on its business and operational assumptions and estimates, and determined there were no material adverse impacts on the Company’s results of operations and financial position at September 30, 2020.

 

The full extent of COVID-19 future impacts on the Company’s operations and financial condition is uncertain. A prolonged COVID-19 outbreak could have a material adverse impact on the Company’s results of operations, financial condition and liquidity, including the timing and ability of the Company to initiate and/or complete current and/or future preclinical studies and/or clinical trials, disrupt the Company’s regulatory activities, and/or have other adverse effects on the Company’s clinical development. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

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 September 30, 2020 and the condensed consolidated results of its operations and cash flows for the three and nine months ended September 30, 2020 and 2019. The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the operating results for the full year ending December 31, 2020 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, 2019 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 March 30, 2020.

 

Note 2 - Going Concern and Management Plans

 

During the nine months ended September 30, 2020, the Company had not generated any revenues, had a net loss of approximately $3,286,000 and had used cash in operations of approximately $2,018,000. As of September 30, 2020, the Company had a working capital deficiency of approximately $7,018,000 and an accumulated deficit of approximately $24,432,000. Subsequent to September 30, 2020 and as more fully described in Note 10, Subsequent Events, the Company received proceeds of $150,000 through the issuance of convertible notes. These conditions raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that these financial statements are issued.

 

 
8

Table of Contents

 

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 sources of operating funds since inception have 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.

 

Note 3 - Summary of Significant Accounting Policies

 

Since the date of the Annual Report on Form 10-K for the year ended December 31, 2019, 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 applicable to common stockholders 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 and nine months ended September 30, 2020 and 2019 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:

 

 

 

 September 30,

 

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

Options

 

 

4,832,004

 

 

 

3,782,004

 

Warrants

 

 

6,250,676

 

 

 

6,459,157

 

Convertible notes

 

 

3,958,756

 

 

 

1,172,144

 

Convertible preferred stock

 

 

13,421,950

 

 

 

11,687,590

 

Total

 

 

28,463,386

 

 

 

23,100,895

 

 

Convertible notes are assumed to be converted at the rate of $0.75 per common share, which is the conversion price. 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.

 

Reclassifications

 

Certain prior period amounts have been reclassified in order to conform to the fiscal 2020 presentation, including certain accrued liabilities that have been reclassified from accrued compensation to accrued interest as well as certain operating expenses that have been reclassified to other expenses. These reclassifications have no impact on the previously reported net loss.

 

Note 4 - Fair Value

 

During the nine months ended September 30, 2020, in connection with the extension of certain convertible notes payable that previously contained a variable conversion price with no floor and, a result, triggered sequencing, the parties agreed to amend the conversion terms such that a conversion price floor of $0.75 per share was established. As a result, the Company had no remaining outstanding instruments with a variable conversion price with no floor and, accordingly, the Company reclassified derivative liabilities with an aggregate fair value of $345,830 to additional paid-in capital. See Note 6, Notes Payable and Convertible Notes Payable for additional details.

 

 
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The following table summarizes the Company’s instruments recorded at fair value as of September 30, 2020 and December 31, 2019:

 

 

 

 

 

 

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

 

$ 38,624

 

 

$ -

 

 

$ -

 

 

$ 38,624

 

Accrued compensation - warrants

 

 

6,919

 

 

 

-

 

 

 

-

 

 

 

6,919

 

Accrued interest - warrants

 

 

83,655

 

 

 

-

 

 

 

-

 

 

 

83,655

 

Accrued interest - warrants - related party

 

 

150,388

 

 

 

-

 

 

 

-

 

 

 

150,388

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance - September 30, 2020

 

$ 279,586

 

 

$ -

 

 

$ -

 

 

$ 279,586

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accrued compensation - common stock

 

$ 40,021

 

 

$ -

 

 

$ -

 

 

$ 40,021

 

Accrued compensation - warrants

 

 

17,931

 

 

 

-

 

 

 

-

 

 

 

17,931

 

Accrued interest - warrants

 

 

57,343

 

 

 

-

 

 

 

-

 

 

 

57,343

 

Accrued interest - warrants - related party

 

 

115,932

 

 

 

-

 

 

 

-

 

 

 

115,932

 

Derivative liabilities

 

 

351,900

 

 

 

-

 

 

 

-

 

 

 

351,900

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance - December 31, 2019

 

$ 583,127

 

 

$ -

 

 

$ -

 

 

$ 583,127

 

 

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. As of September 30, 2020, the Company’s Level 3 liabilities shown in the above table consist of accrued obligations to issue warrants and common stock. As of December 31, 2019, the Company’s Level 3 liabilities shown in the above table consist of sequenced warrants with no price floor as the Company was unable to determine that it had sufficient authorized common stock to settle such arrangements, warrants deemed to be derivative liabilities according to the Company’s sequencing policy in accordance with ASC 815-40-35-12, the embedded conversion options within its convertible notes payable and an accrued obligation to issue warrants and common stock.

 

In applying the Black-Scholes option pricing model utilized in the valuation of Level 3 liabilities, the Company used the following approximate assumptions:

 

 

 

 For the Three Months Ended

 

 

 For the Nine Months Ended

 

 

 

 September 30,

 

 

 September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

Risk-free interest rate

 

0.22% - 0.28

%

 

1.55%-1.91

%

 

0.15% - 1.55

%

 

1.17% - 2.44

%

Expected term (years)

 

4.00 - 5.00

 

 

0.11 - 5.00

 

 

0.52 - 5.00

 

 

0.02 - 5.00

 

Expected volatility

 

 

110 %

 

 

110 %

 

 

110 %

 

 

110 %

Expected dividends

 

 

0.00 %

 

 

0.00 %

 

 

0.00 %

 

 

0.00 %

 

The expected term used is the contractual life of the instrument being valued. Since the Company’s stock does not have significant trading 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.

 

 
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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 nine months ended September 30, 2020:

 

 

 

Accrued

 

 

Accrued

 

 

Derivative

 

 

 

 

 

Interest

 

 

Compensation

 

 

Liability

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance - December 31, 2019

 

$ 173,275

 

 

$ 57,952

 

 

$ 351,900

 

 

$ 583,127

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accrued compensation - common stock

 

 

-

 

 

 

10,021

 

 

 

-

 

 

 

10,021

 

Accrued interest - common stock

 

 

56,875

 

 

 

-

 

 

 

-

 

 

 

56,875

 

Accrued interest - warrants

 

 

26,661

 

 

 

-

 

 

 

-

 

 

 

26,661

 

Accrued interest - warrants - related party

 

 

35,350

 

 

 

-

 

 

 

-

 

 

 

35,350

 

Change in fair value

 

 

(1,243 )

 

 

(135 )

 

 

(16,977 )

 

 

(18,355 )

Issuance of warrants

 

 

-

 

 

 

(10,877 )

 

 

10,907

 

 

 

30

 

Issuance of common stock

 

 

(56,875 )

 

 

(11,418 )

 

 

-

 

 

 

(68,293 )

Reclassification of derivative liabilities to equity

 

 

-

 

 

 

-

 

 

 

(345,830 )

 

 

(345,830 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance - September 30, 2020

 

$ 234,043

 

 

$ 45,543

 

 

$ -

 

 

$ 279,586

 

 

As of September 30, 2020, the Company had an obligation to issue 154,495 shares of common stock to service providers that had a fair value of $38,624, which was a component of accrued compensation on the condensed consolidated balance sheet.

 

See Note 7, Stockholders’ Deficiency – Stock Warrants for additional details associated with the issuance of warrants.

 

Note 5 – Advances Payable

 

On May 6, 2020, the Company received proceeds of $100,000 through an advance. In connection with the advance, the Company issued a five-year immediately vested warrant to purchase 200,000 shares of common stock at $0.75 per share. The warrant had an issuance date relative fair value of $24,386, which was recorded as interest expense on the condensed consolidated statement of operations. On June 1, 2020, the Company repaid the advance in full.

 

On June 18, 2020, the Company paid $5,000 in partial repayment of an outstanding advance.

 

On September 28, 2020, the Company paid $5,000 in partial repayment of an outstanding advance.

 

Note 6 – Notes Payable and Convertible Notes Payable

 

As of September 30, 2020 and through the date of this filing, notes and convertible notes payable with principal amounts totaling $1,538,000 and $3,038,000, respectively, were past due and are classified as current liabilities on the condensed consolidated balance sheet as of September 30, 2020. Such notes continue to accrue interest and all relevant penalties have been accrued as of September 30, 2020. Of such past due notes payable, a holder of a note with principal amount of $250,000 issued a notice of default. See Note 9, 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.

 

During the three months ended September 30, 2020 and 2019, the Company recorded interest expense of $126,867 and $102,804, respectively, and amortization of debt discount of $146,109 and $3,566, respectively. During the nine months ended September 30, 2020 and 2019, the Company recorded interest expense of $308,395 and $236,882, respectively, and amortization of debt discount of $190,639 and $10,095, respectively. As of September 30, 2020 and December 31, 2019, the Company had $587,484 and $573,007, respectively, of accrued interest (including interest in the form of warrants (see Note 4)) and penalties related to notes payable, which is included with accrued interest and accrued interest – related parties on the condensed consolidated balance sheets.

 

Convertible Notes Payable

 

On January 3, 2020, a third party repaid a convertible note in full on behalf of the Company, which payment included a prepayment penalty for an aggregate total payment of $100,896 (principal and interest of $68,000 and $32,896, respectively), which was fully repaid by the Company to the third party as of September 30, 2020. The Company determined the transaction was a note extinguishment and recorded a loss on extinguishment of $1,441 in the condensed consolidated statements of operations.

 

 
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On January 10, 2020, the Company issued a convertible note payable in the principal amount of $78,000. The note accrues interest at 12% per annum and matures on January 10, 2021. Any amount of principal or interest which is not paid at maturity shall accrue interest at 22% per annum. The note also includes certain prepayment penalties that provide for payments ranging from 115% to 140% of the then-outstanding principal and interest. The note is convertible at the option of the holder into common stock at 61% of the lowest trading price during the ten (10) consecutive trading days prior to the conversion date at any time during the period which is 180 days following the issuance date of the convertible note and ending on the later of (i) January 10, 2021 or (ii), in the event of default, the date of the payment of the default amount. The convertible note contained an original issuance discount of $3,000 which was recorded as a debt discount and will be amortized over the term of the note. On July 6, 2020, the Company repaid the convertible note in full, which payment included a prepayment penalty, for an aggregate total payment of $115,483 (principal and interest of $78,000 and $37,483, respectively). In connection with the repayment, the Company recorded a loss on extinguishment of $1,511 in the condensed consolidated statements of operations.

 

On various dates from February 20, 2020 through February 24, 2020, the maturity dates of three convertible notes in the aggregate principal amount of $145,000 were extended to February 15, 2021. The notes had previous maturity dates ranging from January 2017 to February 2018. In connection with these extensions, the parties agreed that (i) the Company would issue an aggregate of 227,500 shares of common stock to the holders with a fair value of $56,875 and (ii) a conversion price floor of $0.75 per share would be established. The Company determined the transaction was a note modification and the fair value of the common stock was setup as a debt discount and will be amortized over the amended term of the notes. On March 31, 2020, the Company issued the shares of common stock.

 

On March 2, 2020, the Company received further proceeds of $500,000 through a previously issued convertible note dated October 28, 2019 in the principal amount of up to $1,500,000, such that the Company had now received aggregate proceeds of $1,000,000 under the convertible note.

 

On June 18, 2020, the Company received further proceeds of $500,000 through a previously issued convertible note dated October 28, 2019 in the principal amount of up to $1,500,000, such that the Company had now received aggregate proceeds of $1,500,000 under the convertible note. The convertible note had a maturity date of October 31, 2020 and the Company is in discussions with the holder to extend the maturity date of the note. In connection with the receipt of these proceeds, the Company issued a five-year immediately vested warrant for the purchase of 1,200,000 shares of common stock at an exercise price of $1.25 per share. The warrant had an issuance date relative fair value of $153,790, which was recorded as a debt discount and will amortized over the term of the note.

 

On July 29, 2020, the Company issued a convertible note payable in the principal amount of $555,556 for net proceeds of $497,500 (gross proceeds of $500,000 less $2,500 of issuance costs) which matures on January 29, 2021. The note accrues interest at 13% per annum and is convertible into common stock at the lower of (i) a conversion price of $0.75 per share (the “Fixed Conversion Price”) or (ii) in the event of a default, as defined in the note, a conversion price of 65% of the lowest volume weighted average price for the ten consecutive trading days ending on the trading day that is immediately prior to the applicable conversion date (the “Default Conversion Price”). The Default Conversion Price shall not apply before March 29, 2021. So long as the convertible note is outstanding, upon any issuance by the Company of any equity at an effective price lower than the conversion price (the “Base Conversion Price”), then the conversion price shall be reduced to equal such Base Conversion Price. The Company determined the embedded conversion option in connection with the Default Conversion Price should not be bifurcated and accounted for as a derivative liability. The original issuance discount of $55,556 and debt issuance costs of $2,500 were each recorded as a debt discount and will be amortized over the term of the note. In connection to the issuance of the convertible note payable, the Company issued a five-year immediately vested warrant to purchase 146,199 shares of common stock at an exercise price of $0.95 per share, which may be exercised on a cashless basis. The warrant had an issuance date relative fair value of $20,098, which was recorded as a debt discount and will amortized over the term of the note.

 

Notes Payable

 

On April 15, 2020, the maturity dates of two promissory notes in the aggregate principal amount of $350,000, originally due in 2015 and 2016, were extended to April 15, 2021. In connection with these extensions, the Company issued an aggregate of 525,000 shares of common stock to the holders with a fair value of $131,250. The Company determined the extensions were note extinguishments and recorded a loss on extinguishment of $131,250 in the condensed consolidated statements of operations during the nine months ended September 30, 2020.

 

On June 3, 2020, the Company issued a note payable in the principal amount of $100,000. The note does not accrue interest and matures on December 3, 2020. The note was repaid in full by the Company on June 18, 2020. In connection with the note issuance, the Company issued a five-year immediately vested warrant to purchase 50,000 shares of common stock at an exercise price of $0.75 per share. The warrant had an issuance date relative fair value of $7,466, which was recorded as a debt discount and was to be amortized over the term of the note, however, was recognized during the nine months ended September 30, 2020 as a result of the repayment of the note.

 

On July 29, 2020, the Company fully repaid the principal of a promissory note in the amount of $100,000.

 

 
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Note 7 – Stockholders’ Deficiency

 

Series A Convertible Preferred Stock

 

On January 29, 2020, the Board of Directors extended the expiration date of the Private Placement Memorandum (“PPM”) to March 31, 2020 and has authorized two sixty-day extensions beyond that date at management's discretion, under which the Company continues to raise up to $10,000,000 via the sale of up to 1,333,333 shares of Series A Convertible Preferred Stock at $7.50 per share. On March 25, 2020, the Board of Directors extended the expiration date of the PPM to May 30, 2020. On May 27, 2020, the Board of Directors extended the expiration date of the PPM to July 29, 2020. On July 27, 2020, the Company’s PPM was now fully subscribed.

 

During the nine months ended September 30, 2020, the Company received aggregate proceeds of $728,347 through the sale of 97,112 shares of Series A Convertible Preferred Stock at $7.50 per share.

 

During the three and nine months ended September 30, 2020, the Company accrued and recorded cumulative Series A Convertible Preferred Stock dividends of $226,191 and $649,381, respectively, with an increase in liabilities and a corresponding decrease in additional paid-in capital. During the three and nine months ended September 30, 2019, the Company accrued and recorded cumulative Series A Convertible Preferred Stock dividends of $197,911 and $534,919, respectively, with an increase in liabilities and a corresponding decrease in additional paid-in capital.

 

During the nine months ended September 30, 2020, the Company issued 574,576 shares of common stock valued at $0.75 per share for aggregate value of $430,905, pursuant to the terms of the Series A Convertible Preferred Stock Certificate of Designation, in connection with the partial payment of accrued dividends for Series A Convertible Preferred Stock.

 

Common Stock

 

On March 31, 2020, the Company issued 25,671 shares of immediately vested common stock with a fair value of $6,418 to a service provider in connection with consulting services provided.

 

During the nine months ended September 30, 2020, the Company issued an aggregate of 1,270,000 shares of common stock with an issuance date fair value of $317,500 to service providers in connection with consulting services provided. In connection with the issuances, the Company expects to recognize the fair value of the common stock over the service period, such that it recognized stock-based compensation expense of $9,375 and $314,375 during the three and nine months ended September 30, 2020, respectively, which amount was included within general and administrative expenses on the condensed consolidated statements of operations.

 

During the three and nine months ended September 30, 2020, the Company issued an aggregate of 265,534 shares of common stock with a fair value of $66,649 in exchange for accrued interest in the aggregate amount of $199,151. The Company recognized the difference of $132,502 as a gain on exchange of accrued interest for common stock on the condensed consolidated statements of operations.

 

See Note 6, Notes Payable and Convertible Notes Payable for additional details associated with the issuance of common stock.

 

Stock Warrants

 

On February 13, 2020, the Company issued five-year placement agent warrants to purchase 66,653 shares of common stock at an exercise price of $0.75 per share in satisfaction of accrued liabilities of $10,907 that were earned in connection with the sale of Series A Convertible Preferred Stock during the year ended December 31, 2019.

 

On May 20, 2020, the Company issued a five-year warrant to purchase 100,000 shares of common stock at an exercise price of $0.75 per share to a service provider in connection with consulting services to be provided. The warrant had an issuance date fair value of $16,129. In connection with the issuance, the Company expects to recognize the fair value of the warrants over the service period, such that it recognized stock-based compensation expense of $4,322 during the nine months ended September 30, 2020, which amount was included within general and administrative expenses on the condensed consolidated statements of operations.

 

On August 19, 2020, the Company issued five-year immediately vested warrants to purchase an aggregate of 1,598,000 shares of common stock at an exercise price of $0.75 per share to members of the Company’s Scientific Advisory Board. The warrants had an aggregate issuance date fair value of $247,700 which was recognized immediately within general and administrative expenses on the condensed consolidated statement of operations.

 

On August 20, 2020, the Company issued a five-year warrant to purchase 200,000 shares of common stock at an exercise price of $0.75 per share to a service provider in connection with consulting services to be provided. The warrant vests in equal monthly installments during the sixteen-month period commencing one month after the date of the issuance. The warrant had an issuance date fair value of $32,200, which will be recognized over the service period.

 

See Note 5, Advances Payable and Note 6, Notes Payable and Convertible Notes Payable for additional details associated with the issuance of stock warrants.

 

 
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Stock Options

 

On August 19, 2020, the Company granted five-year immediately vested stock options to purchase an aggregate of 1,050,000 shares of common stock at an exercise price of $0.75 per share to directors of the Company under the 2019 Equity Incentive Plan. The stock options had a grant date value of $103,600 which was recognized immediately.

 

Stock-Based Compensation

 

During the three and nine months ended September 30, 2020, the Company recognized stock-based compensation expense of $349,050 and $686,472, respectively, related to common stock, options and warrants, which amounts were included within general and administrative expenses on the condensed consolidated statements of operations. During the three and nine months ended September 30, 2019, the Company recognized stock-based compensation expense of $826,785 (of which $825,100 was included within research and development and $1,695 was included within general and administrative expenses on the condensed consolidated statements of operations) and $830,534 (of which $825,100 was included within research and development and $5,434 was included within general and administrative expenses on the condensed consolidated statements of operations), respectively, related to warrants, common stock and options. As of September 30, 2020, there was $35,574 of unrecognized stock-based compensation expense which the Company expects to recognize over a weighted average period of 0.7 years.

 

Note 8 – 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 September 30, 2020 and 2019, the Company recorded research and development expense of $0 and $33,333, respectively, and during the nine months ended September 30, 2020 and 2019, the Company recorded research and development expense of $111,667 and $83,333, respectively, in connection with the agreement with Yeda.

 

As of September 30, 2020 and December 31, 2019, the Company was required to issue warrants to purchase an aggregate of 981,500 and 756,500, respectively, shares of common stock at an exercise price of $0.75 per share to directors of the Company in connection with loans made to the Company in the aggregate amount of $459,000 which required certain penalties in the form of warrants. As a result, the Company had accrued $150,388 and $115,932 associated with the fair value of the obligations as of September 30, 2020 and December 31, 2019, respectively, which amount is included in accrued interest – related parties on the condensed consolidated balance sheets.

 

See Note 10 – Subsequent Events – Stock Warrants for additional details associated with the exercise of a stock warrant by a related party.

 

Note 9 – Commitments and Contingencies

 

MD Anderson Sponsored Research Agreements

 

The Company recognized $237,546 and $600,017 of research and development expenses during the three and nine months ended September 30, 2020, respectively, associated with services provided by The University of Texas M.D. Anderson Cancer Center (“MD Anderson”) in the periods, under the two agreements with MD Anderson dated November 2019 and February 2019, respectively. The Company recognized $249,171 and $1,230,411 of research and development expenses during the three and nine months ended September 30, 2019, respectively, associated with services provided by MD Anderson in those periods. As of September 30, 2020 and December 31, 2019, the Company had $462,785 and $382,398, respectively, of accrued research and development expenses pursuant to the agreements with MD Anderson, which are included within accrued expenses on the condensed consolidated balance sheets.

 

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.

 

 
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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 September 30, 2020 and December 31, 2019, the Company has not accrued any amounts for contingencies.

 

Note 10 – Subsequent Events

 

The Company has evaluated events that have occurred after the balance sheet and through the date the financial statements were issued. Based upon the evaluation, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the financial statements, except as disclosed below.

 

Convertible Notes Payable

 

On October 16, 2020, the Company issued a convertible note payable in the amount of $100,000 which matures on April 15, 2021. The note accrues interest at 8% per annum and is convertible into the Company’s Series B Convertible Preferred Stock (the “Series B Preferred Stock”) at a conversion price of $7.50. The note shall be become convertible at (i) the holder’s option beginning on the date that the Company first issues any shares of its Series B Preferred Stock (ii) automatically on the maturity date. It is anticipated that the Series B Preferred Stock shall convert into the Company’s common stock at a fixed rate of ten shares of common stock for each share of Series B Preferred Stock. In connection with the issuance of the convertible note, the Company issued a five-year immediately vested warrant to purchase 80,000 shares of common stock at an exercise price $1.25 per share.

 

On October 20, 2020, the Company issued a convertible note payable in the amount of $50,000 which matures on April 20, 2021. The note accrues interest at 8% per annum and is convertible into Series B Preferred Stock at a conversion price of $7.50. The note shall be become convertible at (i) the holder’s option beginning on the date that the Company first issues any shares of its Series B Preferred Stock (ii) automatically on the maturity date. It is anticipated that the Series B Preferred Stock shall convert into the Company’s common stock at a fixed rate of ten shares of common stock for each share of Series B Preferred Stock. In connection with the issuance of the convertible note payable, the Company issued a five-year immediately vested warrant to purchase 40,000 shares of common stock at an exercise price $1.25 per share.

 

Stock Warrants

 

On October 15, 2020, the Company issued a five-year warrant to purchase 200,000 shares of common stock at an exercise price of $0.75 per share to a service provider in connection with consulting services to be provided. The warrant vests in equal monthly installments during the sixteen-month period commencing one month after the date of the issuance.

 

On November 1, 2020, Yeda exercised a warrant to purchase 1,995,376 shares of common stock for proceeds of $1,995, which resulted in the issuance of 1,995,376 shares of common stock.

 

Stock Options

 

On October 7, 2020, the Company granted five-year immediately vested stock options to purchase 500,000 shares of common stock at an exercise price of $0.75 per share to a nonemployee under the 2019 Equity Incentive Plan.

 

 
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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 September 30, 2020 and for the three and nine months ended September 30, 2020 and 2019 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, 2019 as filed with the Securities and Exchange Commission (“SEC”) on March 30, 2020.

 

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, 2019 filed with the SEC on March 30, 2020.

 

Overview

 

We are a cell therapy company focused on immunotherapy. Since our inception, we have been involved with the development of proprietary immune system management technology licensed from Yeda Research & Development Company Limited (“Yeda”), the commercial arm of the Weizmann Institute of Science. We have recently shifted the focus of our Research and Development efforts to MD Anderson.

 

This technology addresses one of the most fundamental challenges within human immunology: how to tune the immune response such that it tolerates selected desirable foreign cells or tissue, but continues to attack all other (undesirable) targets. In simpler terms, a number of potentially life-saving treatments have limited effectiveness today because the patient’s immune system rejects them. For example, while HSCT - hematopoietic stem cell transplantation (e.g. bone marrow transplantation) has become a preferred therapeutic approach for treating blood cell cancer, most patients do not have a matched family donor. Although matched unrelated donors and cord blood can each provide an option for such patients, haploidentical stem cell transplants (sourced from partially mismatched family members) are rapidly gaining favor as a treatment of choice. This is still a risky and difficult procedure primarily because of potential conflicts between host and donor immune systems and also due to viral infections that often follow even successful HSCT while the compromised new immune system works to reconstitute itself by using the transplanted stem cells. Today, rejection is partially overcome using aggressive immune suppression treatments that leave the patient exposed to many dangers by compromising their immune system.

 

The unique advantage of Cell Source technology lies in the ability to induce sustained tolerance of transplanted cells (or organs) by the recipient’s immune system in a setting that requires only mild immune suppression, while avoiding the most common post-transplant complications. The scientific term for inducing such tolerance in a transplantation setting is chimerism, where the recipient’s immune system tolerates the co-existence of the (genetically different) donor type and host (recipient) type cells. Attaining sustained chimerism is an important prerequisite to achieving the intrinsic GvL (graft versus leukemia) effect of HSCT and supporting the reconstitution of normal hematopoiesis (generation of blood cells, including those that protect healthy patients from cancer) in blood cancer patients. Preclinical data show that Cell Source’s Veto Cell technology (currently in clinical trials in the US) can provide superior results in allogeneic (donor-derived) HSCT by allowing for haploidentical stem cell transplants under a mild conditioning regimen, while avoiding the most common post-transplant complications. Combining this with CAR (Chimeric Antigen Receptor) T cell therapy as a unified VETO CAR-T treatment, we will be able to treat patients in relapse as well as those in remission and use the cancer killing power of CAR-T to protect the patient while their immune system fully reconstitutes, thus providing an end-to-end solution for blood cancer treatment by potentially delivering a fundamentally safer and more effective allogeneic HSCT: prevention of relapse; avoidance of GvHD; prevention of viral infections; and enhanced persistence of GvL effect. This means that the majority of patients will be able to find a donor, and will have access to a potentially safer procedure with higher long term survival rates than what either donor-derived HSCT or autologous CAR-T each on their own currently provide.

 

 
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The ability to induce permanent chimerism (and thus sustained tolerance) in patients – which allows the transplantation to overcome rejection without having to compromise the rest of the immune system - may open the door to effective treatment of a number of severe medical conditions, in addition to blood cancers, which are characterized by this need. These include:

 

 

·

The broader set of cancers, including solid tumors, that can potentially be treated effectively using genetically modified cells such as CAR-T cell therapy, but also face efficacy and economic constraints due to limited persistence based on immune system issues (i.e., the need to be able to safely and efficiently deliver allogeneic CAR-T therapy). Inducing sustained tolerance to CAR-T cells may bring reduced cost and increased efficacy by allowing for off-the-shelf (vs. patient-derived) treatments with more persistent cancer killing capability.

 

 

 

 

·

Organ failure and transplantation. A variety of conditions can be treated by the transplantation of vital organs. However, transplantation is limited both by the insufficient supply of available donor organs and the need for lifelong, daily anti-rejection treatments post-transplant. Haploidentical organ transplants, with sustained chimerism, have the potential to make life saving transplants accessible to the majority of patients, with the prospect of improved life quality and expectancy.

 

 

 

 

·

Non-malignant hematological conditions (such as type one diabetes and sickle cell anemia) which could, in many cases, also be more effectively treated by stem cell transplantation if the procedure could be made safer and more accessible by inducing sustained tolerance in the stem cell transplant recipient.

 

Recent Developments

 

COVID-19

 

Recently, the outbreak of the novel coronavirus, or COVID-19, around the world has adversely impacted global commercial activity and contributed to significant volatility in financial markets and disrupted normal business operations. The global impact of the outbreak has been rapidly evolving, and many countries have reacted by instituting quarantines and restrictions on travel, and many businesses and other institutions have temporarily closed or reduced work activities at their facilities. Such actions are creating disruption in global supply chains, and adversely impacting a number of industries, such as transportation, hospitality and entertainment. The outbreak could have a continued adverse impact on economic and market conditions and trigger a period of global economic slowdown. The rapid development and fluidity of this situation precludes any prediction as to the ultimate adverse impact of the novel coronavirus. Nevertheless, the novel coronavirus presents material uncertainty and its disruption of the capital markets may have a material adverse impact on our ability to raise additional capital and may slow down the pace at which research and clinical trials may be conducted on our behalf.

 

Condensed Consolidated Results of Operations

 

Three Months Ended September 30, 2020 Compared with the Three Months Ended September 30, 2019

 

Research and Development

 

Research and development expense was $257,546 and $1,192,090 for the three months ended September 30, 2020 and 2019, respectively, a decrease of $934,544, or 78%, primarily related to the recognition of non-cash stock-based compensation expense of $825,100 in connection to a stock option grant to a consultant during the three months ended September 30, 2019.

      

General and Administrative

 

General and administrative expense, which is associated with external consulting and professional fees, payroll and stock-based compensation expenses, was $908,099 and $168,906 for the three months ended September 30, 2020 and 2019, respectively, an increase of $739,193, or 438%, primarily related to increases in the 2020 period of approximately $350,000 in non-cash stock-based compensation expenses in connection with stock option grants to directors and stock warrant issuances to Scientific Advisory Board members in 2020, approximately $110,000 of legal fees and approximately $266,000 of consulting and marketing fees.

    

Change in Fair Value of Derivative Liabilities

 

The change in fair value of derivative liabilities for the three months ended September 30, 2019, was a gain of $33,500, primarily due to the warrants and conversion options, which were deemed to be derivative liabilities, either drawing closer to their expiration dates or were no longer outstanding. There was no change in fair value of derivative liabilities during the three months ended September 30, 2020 as a result of the reclassification of our derivative liabilities to additional paid-in capital during the first quarter of 2020.

 

Interest Expense

 

Interest expense for the three months ended September 30, 2020 and 2019 was $126,867 and $102,804, respectively, an increase of $24,063, or 23%, primarily as a result of increases in convertible notes payable outstanding during the 2020 period.

 

 
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Amortization of Debt Discount

 

Amortization of debt discount was $146,109 and $3,566 for the three months ended September 30, 2020 and 2019, respectively, which is associated with warrants and original issuance discounts issued in connection with convertible notes payable.

 

Warrant Modification Expense

 

During the three months ended September 30, 2019, we recognized $54,100 of warrant modification expense related to the extension of the expiration date of a certain warrant.

 

Loss on Extinguishment of Debt

 

During the three months ended September 30, 2020 and 2019, we recognized $1,511 and $0 of loss on extinguishment of debt in connection with the extension and repayment of notes payable.

 

Gain on Exchange of Accrued Interest for Common Stock

 

During the three months ended September 30, 2020, we recognized a $132,502 gain on exchange of accrued interest for common stock, which represents the excess carrying value of the $199,151 of accrued interest as compared to $66,649 of the issuance date fair value of the common stock.

 

Nine Months Ended September 30, 2020 Compared with the Nine Months Ended September 30, 2019

 

Research and Development

 

Research and development expense was $786,684 and $2,352,602 for the nine months ended September 30, 2020 and 2019, respectively, a decrease of $1,565,918, or -67%, primarily related to the recognition of non-cash stock-based compensation expense of $825,100 in connection with a stock option grant to a consultant, expense in connection with milestone payments to MD Anderson in the amount of approximately $731,000 associated with the initial upfront payment as well as with validation runs and depletions performed during the nine months ended September 30, 2019.

  

General and Administrative

 

General and administrative expense was $2,015,624 and $909,334 for the nine months ended September 30, 2020 and 2019, respectively, an increase of $1,106,290, or 122%, primarily related to increases in the 2020 period of approximately $682,000 in non-cash stock-based compensation expenses in connection with stock option grants to directors, common stock and stock warrant issuances to consultants and Scientific Advisory Board members in 2020, approximately $165,000 of legal fees, approximately $202,000 of consulting and marketing fees and approximately $69,000 of insurance expenses.

    

Change in Fair Value of Derivative Liabilities

 

The change in fair value of derivative liabilities for the nine months ended September 30, 2020 and 2019 was a gain of $16,977 and a gain of $118,500, 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 nine months ended September 30, 2020 and 2019 was $308,395 and $236,882, respectively, an increase of $71,513, or 30%, primarily as a result of increases in convertible notes payable outstanding during the 2020 period.

 

Amortization of Debt Discount

 

Amortization of debt discount was $190,639 and $10,095 for the nine months ended September 30, 2020 and 2019, respectively, which is associated with warrants and conversion options issued in connection with convertible notes payable.

 

Warrant Modification Expense

 

During the nine months ended September 30, 2019, we recognized $283,500 of warrant modification expense on the extension of an expiration date of a certain warrant.

 

 
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Loss on Exchange of Notes Payable for Series A Convertible Preferred Stock

 

During the nine ended September 30, 2019, we recognized a loss on exchange of notes payable for Series A Convertible Preferred Stock of $262,470, which represents the value of the preferred shares in excess of the carrying value of notes payable.

 

Loss on Extinguishment of Debt

 

During the nine months ended September 30, 2020 and 2019, we recognized $134,202 and $1,504, respectively, of loss on extinguishment of debt in connection with the extension and repayment of notes payable.

 

Gain on Exchange of Accrued Interest for Common Stock

 

During the nine months ended September 30, 2020, we recognized a $132,502 gain on exchange of accrued interest for common stock, which represents the excess carrying value of the accrued interest as compared to the issuance date fair value of the common stock.

 

Gain on Forgiveness of Accrued Expenses

 

During the nine months ended September 30, 2019, we recognized $38,427 of gain on forgiveness of accrued expenses. The gain recognized represents the forgiveness of accrued payroll expenses and director fees due by a former member of the Board of Directors.

 

Liquidity and Going Concern

 

We measure our liquidity in a number of ways, including the following:

 

 

 

 September 30,

 

 

 December 31,

 

 

 

2020

 

 

2019

 

 

 

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$ 54,736

 

 

$ 27,908

 

Working capital deficiency

 

$ (7,018,431 )

 

$ (5,596,941 )

 

During the nine months ended September 30, 2020, we had not generated any revenues, had a net loss of approximately $3,286,000 and had used cash in operations of approximately $2,018,000. As of September 30, 2020, we had a working capital deficiency of approximately $7,018,000 and an accumulated deficit of approximately $24,432,000. Subsequent to September 30, 2020, we received proceeds of $150,000 through the issuance of convertible notes payable. These conditions raise substantial doubt about our ability to continue as a going concern within one year after the date these financial statements are issued.

 

We are currently funding our operations on a month-to-month basis. 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 nine months ended September 30, 2020 and 2019, 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 nine months ended September 30, 2020 and 2019 in the amounts of $2,018,019 and $1,723,872, respectively. The net cash used in operating activities for the nine months ended September 30, 2020 was primarily due to cash used to fund a net loss of approximately $3,286,065, adjusted for net non-cash expenses in the aggregate amount of $922,603, partially offset by $345,443 of net cash provided by changes in the levels of operating assets and liabilities. The net cash used in operating activities for the nine months ended September 30, 2019 was primarily due to cash used to fund a net loss of $3,899,460, adjusted for net non-cash income in the aggregate amount of $1,306,945, and by $868,643 of net cash provided by changes in the levels of operating assets and liabilities.

   

 
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Net Cash Provided by Financing Activities

 

Net cash provided by financing activities for the nine months ended September 30, 2020 and 2019 was $2,044,847 and $1,713,769, respectively. The net cash provided by financing activities during the nine months ended September 30, 2020 was attributable to $1,572,500 of proceeds from the issuance of convertible notes payable, $728,347 of proceeds from the issuance of Series A preferred stock, $100,000 of proceeds from the issuance of notes payable and $100,000 of proceeds from advances payable, offset by the repayments of notes payable in the amount of $200,000, $110,000 of repayments of advances payable and $146,000 of repayments of convertible notes payable. The net cash provided by financing activities during the nine months ended September 30, 2019 was attributable to $1,223,269 of proceeds received from the issuance of Series A preferred stock, $275,500 of proceeds from advances payable and $215,000 of net proceeds from debt financings.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements.

 

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 September 30, 2020, 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 September 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 
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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, 2019, which was filed with the SEC on March 30, 2020.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

In July 2020, we issued a convertible note payable in the principal amount of $555,556 for net proceeds of $497,500 (gross proceeds of $500,000 less $2,500 of issuance costs) which matures on January 29, 2021. The note accrues interest at 13% per annum and is convertible into common stock at the lower of (i) a conversion price of $0.75 per share (the “Fixed Conversion Price”) or (ii) in the event of a default, as defined in the note, a conversion price of 65% of the lowest volume weighted average price for the ten consecutive trading days ending on the trading day that is immediately prior to the applicable conversion date (the “Default Conversion Price”). The Default Conversion Price shall not apply before March 29, 2021. So long as the convertible note is outstanding, upon any issuance of our equity at an effective price lower than the conversion price (the “Base Conversion Price”), then the conversion price shall be reduced to equal such Base Conversion Price. In connection to the issuance of the convertible note payable, we issued a five-year immediately vested warrant to purchase 146,199 shares of common stock at an exercise price of $0.95 per share, which may be exercised on a cashless basis. We relied upon the exemption provided by Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”) in connection with this transaction.

 

During the three months ended September 30, 2020, we sold  80,446 shares of Series A Preferred Stock to accredited investors at a price of $7.50 per share for gross proceeds of $603,345.  We relied upon the exemptions provided by Rule 506 and Section 4(2) of the Securities Act in connection with these transactions.

 

In August 2019, we issued five year warrants to purchase an aggregate of 1,598,000 shares of common stock at an exercise price of $.75 per share to members of our Scientific Advisory Board.  We relied upon the exemption provided by Section 4(2) of the Securities Act in connection with these transactions.

 

In August 2020, we issued a five year warrant to purchase 200,000 shares of common stock at an exercise price of $.75 per share to a service provider in connection with consulting services to be provided. The warrant vests in equal monthly installments during the sixteen-month period commencing one month after the date of the issuance. We relied upon the exemption provided by Section 4(2) of the Securities Act in connection with this transaction.

 

In August 2020, we issued options to purchase an aggregate of 1,050,000 shares of common stock at an exercise price of $.75 per share to members of our Board of Directors under our 2019 Equity Incentive Plan. We relied upon the exemption provided by Section 4(2) of the Securities Act in connection with these transactions.

 

In October 2020, we issued a five year warrant to purchase 200,000 shares of common stock at an exercise price of $.75 per share to a service provider in connection with consulting services to be provided.  The warrant vests in equal monthly installments during the sixteen-month period commencing one month after the date of the issuance. We relied upon the exemption provided by Section 4(2) of the Securities Act in connection with this transaction.

 

In October 2020, we issued five year immediately vested options to purchase 500,000 shares of common stock at an exercise price of $.75 per share to a consultant under our 2019 Equity Incentive Plan.  We relied upon the exemption provided by Section 4(2) of the Securities Act in connection with this transaction.

 

In October 2020, we issued convertible notes in the aggregate principal amount of $150,000 to two accredited investors.  The notes mature six months from the date of issuance and accrue interest at a rate of eight percent (8%) per annum. The notes are convertible into shares of our Series B Preferred Stock at a conversion price of $7.50 per share at the holder’s option beginning on the date we first issue any shares of Series B Preferred Stock and automatically on the maturity date.  It is anticipated that the Series B Preferred Stock will convert into shares of our common stock at a rate of ten shares of common stock for each share of Series B Preferred Stock.  In connection with the issuance of the notes, we issued five year warrants to purchase an aggregate of 120,000 shares of common stock at an exercise price of $1.25 per share.  We relied upon the exemption provided by Section 4(2) of the Securities Act in connection with these transactions.

 

In November 2020, we issued 1,995,376 shares of common stock to Yeda in connection with its exercise of a warrant having an aggregate exercise price of $1,995. We relied upon the exemption provided by Section 4(2) of the Securities Act in connection with this transactions.

 

 

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Item 3. Defaults Upon Senior Securities.

  

As of September 30, 2020 and through the date of this filing, notes payable and convertible notes payable with face values totaling $1,538,000 and $3,038,000, respectively, were past due and are classified as current liabilities on the condensed consolidated balance sheet as of September 30, 2020. Such notes continue to accrue interest and all relevant penalties have been accrued as of September 30, 2020. 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.

 

Item 6. Exhibits.

 

 

 
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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: November 13, 2020

By:

/s/Itamar Shimrat

 

 

Name:

Itamar Shimrat

 

 

Title:

Chief Executive Officer and

Chief Financial Officer (Principal

Executive, Financial and Accounting

Officer)

 

 

 
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