Company Quick10K Filing
Quick10K
Cell Source
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-K 2017-03-31 Annual: 2017-03-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-04-19 Officers
ACH Aluminum Corp of China 7,220
BKS Barnes & Noble 361
BFRA Biofrontera 322
WNEB Western New England Bancorp 266
BCML Baycom 244
GHM Graham 197
JP Jupai Holdings 142
CLSD Clearside Biomedical 46
EACQ Easterly Acquisition 0
REPR Repro Med Systems 0
CLCS 2018-09-30
Part I - Financial Information
Item 1. Financial Statements.
Note 1 - Business Organization, Nature of Operations and Basis of Presentation
Note 2 - Going Concern and Management Plans
Note 3 - Summary of Significant Accounting Policies
Note 4 - Fair Value
Note 5 - Notes Payable
Note 6 - Stockholders' Deficiency
Note 7 - Related Party Transactions
Note 8 - Subsequent Events
Note 9 - Revision of Financial Statements for The Three and Six Months Ended June 30, 2018
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-31 ex31.htm
EX-32 ex32.htm

Cell Source Earnings 2018-09-30

CLCS 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 g8638.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2018

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

For the transition period from _______ to _______

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

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

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

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 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, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer
Accelerated filer
Non-accelerated filer
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 12, 2018, the registrant had 25,780,549 shares of $0.001 par value common stock outstanding.
 


CELL SOURCE, INC. AND SUBSIDIARY

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2018

TABLE OF CONTENTS
 
PART I - FINANCIAL INFORMATION
 
 
 
 
 
 Item 1. Financial Statements.
 
1
     
Condensed Consolidated Balance Sheets as of
 
 
September 30, 2018 (Unaudited) and December 31, 2017
 
1
     
Unaudited Condensed Consolidated Statements of Operations for the
 
 
Three and Nine Months Ended September 30, 2018 and 2017
 
2
     
Unaudited Condensed Consolidated Statement of Changes in Stockholders’
   
Deficiency for the Nine Months Ended September 30, 2018
 
3
     
Unaudited Condensed Consolidated Statements of Cash Flows for the
 
 
Nine Months Ended September 30, 2018 and 2017
 
4
     
Notes to Unaudited Condensed Consolidated Financial Statements
 
5
 
 
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
12
 
 
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
 
14
 
 
 
Item 4. Controls and Procedures.
 
15
 
 
 
PART II - OTHER INFORMATION
 
 
 
 
 
Item 1. Legal Proceedings.
 
16
 
 
 
Item 1A. Risk Factors.
 
16
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
 
16
 
 
 
Item 3. Defaults Upon Senior Securities.
 
16
 
 
 
Item 4. Mine Safety Disclosures.
 
16
 
 
 
Item 5. Other Information.
 
16
 
 
 
Item 6. Exhibits.
 
16
 
 
 
SIGNATURES
 
17
 
 


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

CONDENSED CONSOLIDATED BALANCE SHEETS
 
 
   
September 30, 2018
   
December 31, 2017
 
     
(Unaudited)
       
Assets
           
             
Current Assets:
           
Cash
 
$
8,121
   
$
371,048
 
Prepaid expenses
   
85,267
     
124,693
 
Other current assets
   
48,321
     
35,936
 
Total Assets
 
$
141,709
   
$
531,677
 
                 
Liabilities and Stockholders' Deficiency
               
                 
Current Liabilities:
               
Accounts payable
 
$
289,032
   
$
201,824
 
Accrued expenses
   
861,418
     
821,244
 
Accrued interest
   
334,474
     
248,746
 
Accrued interest - related parties
   
26,554
     
13,310
 
Accrued compensation
   
670,943
     
626,758
 
Accrued compensation - related party
   
55,439
     
19,262
 
Advances payable
   
600,000
     
100,000
 
Notes payable, net of debt discount of $0 and $89,326, as of September 30, 2018 and December 31, 2017, respectively
   
1,763,000
     
1,173,674
 
Notes payable - related parties
   
150,000
     
150,000
 
Convertible notes payable, net of debt discount of $0 and $34,173 as of September 30, 2018 and December 31, 2017, respectively
   
835,000
     
800,827
 
Convertible notes payable - related parties, net of debt discount of $0 and $28,356 as of September 30, 2018 and 
December 31, 2017, respectively
   
225,000
     
196,644
 
Derivative liabilities
   
287,400
     
628,200
 
Accrued dividend payable
   
112,703
     
108,562
 
Total Liabilities
   
6,210,963
     
5,089,051
 
                 
Commitments and contingencies
   
-
     
-
 
                 
Stockholders' Deficiency:
               
Convertible Preferred Stock, $0.001 par value, 10,000,000 shares authorized; Series A Convertible Preferred Stock, 1,335,000
shares designated, 650,457 and 643,790 shares issued and outstanding as of September 30, 2018 and December 31, 2017,
respectively; liquidation preference of $4,991,131 and $4,936,987 as of September 30, 2018 and December 31, 2017, respectively
   
650
     
644
 
Common Stock, $0.001 par value, 200,000,000 shares authorized, 25,780,549 and 25,349,236 shares issued and outstanding as of
September 30, 2018 and December 31, 2017, respectively
   
25,781
     
25,349
 
Additional paid-in capital
   
10,014,940
     
9,969,520
 
Accumulated deficit
   
(16,110,625
)
   
(14,552,887
)
Total Stockholders' Deficiency
   
(6,069,254
)
   
(4,557,374
)
                 
Total Liabilities and Stockholders' Deficiency
 
$
141,709
   
$
531,677
 
 
 
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
1


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,
 
   
2018
   
2017
   
2018
   
2017
 
Operating Expenses:
                       
Research and development
 
$
56,459
   
$
152,658
   
$
165,997
   
$
422,903
 
Research and development - related party
   
72,527
     
200,000
     
375,151
     
600,000
 
General and administrative
   
359,660
     
202,480
     
1,031,517
     
662,455
 
Total Operating Expenses
   
488,646
     
555,138
     
1,572,665
     
1,685,358
 
                                 
Loss From Operations
   
(488,646
)
   
(555,138
)
   
(1,572,665
)
   
(1,685,358
)
                                 
Other (Expense) Income:
                               
Interest expense
   
(30,923
)
   
(33,445
)
   
(124,774
)
   
(144,112
)
Interest expense - related parties
   
(756
)
   
(756
)
   
(49,244
)
   
(2,244
)
Amortization of debt discount
   
-
     
(49,502
)
   
(173,099
)
   
(339,133
)
Amortization of debt discount - related parties
   
-
     
(18,904
)
   
(28,356
)
   
(30,040
)
Change in fair value of derivative liabilities
   
115,500
     
149,200
     
390,400
     
452,880
 
Loss on exchange of notes payable for preferred shares
   
-
     
-
     
-
     
(725,355
)
Total Other Income (Expense)
   
83,821
     
46,593
     
14,927
     
(788,004
)
                                 
Net Loss
   
(404,825
)
   
(508,545
)
   
(1,557,738
)
   
(2,473,362
)
                                 
Dividend attributable to Series A preferred stockholders
   
(110,666
)    
(74,261
)
   
(327,626
)
   
(150,630
)
                                 
Net Loss Applicable to Common Stockholders
 
$
(515,491
)
 
$
(582,806
)
 
$
(1,885,364
)
 
$
(2,623,992
)
                                 
Net Loss Per Common Share - Basic and Diluted
 
$
(0.02
)
 
$
(0.02
)
 
$
(0.07
)
 
$
(0.10
)
                                 
Weighted Average Common Shares Outstanding -
                               
Basic and Diluted
   
27,580,598
     
26,807,466
     
27,456,267
     
26,751,525
 
 
 
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
2


 
CELL SOURCE, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018

(Unaudited)
 
 
   
Convertible Preferred
                     
Total
 
     
Stock - Series A
   
Common Stock
   
Additional
   
Accumulated
   
Stockholders'
 
     
Shares
   
Amount
   
Shares
   
Amount
   
Paid-In Capital
   
Deficit
   
Deficiency
 
                                           
Balance, December 31, 2017
   
643,790
   
$
644
     
25,349,236
   
$
25,349
   
$
9,969,520
   
$
(14,552,887
)
 
$
(4,557,374
)
                                                         
Issuance of Series A Convertible 
Preferred Stock for cash
   
6,667
     
6
     
-
     
-
     
49,994
     
-
     
50,000
 
                                                         
Series A Convertible Preferred Stock dividends:
Accrual of earned dividends
   
-
     
-
     
-
     
-
     
(327,626
)
   
-
     
(327,626
)
Payment of dividends in-kind
   
-
     
-
     
431,313
     
432
     
323,052
     
-
     
323,484
 
                                                         
Net loss
   
-
     
-
     
-
     
-
     
-
     
(1,557,738
)
   
(1,557,738
)
                                                         
Balance, September 30, 2018
   
650,457
   
$
650
     
25,780,549
   
$
25,781
   
$
10,014,940
   
$
(16,110,625
)
 
$
(6,069,254
)
 
 
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
3


 
CELL SOURCE, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)
 
 
      
For The Nine Months Ended September 30,
 
   
2018
   
2017
 
Cash Flows From Operating Activities:
           
Net loss
 
$
(1,557,738
)
 
$
(2,473,362
)
Adjustments to reconcile net loss to net cash used in operating activities:
               
Change in fair value of derivative liabilities
   
(390,400
)
   
(452,880
)
Amortization of debt discount
   
201,455
     
369,173
 
Loss on exchange of notes payable for preferred shares
   
-
     
725,355
 
Depreciation
   
-
     
407
 
Stock-based compensation:
               
Warrants
   
-
     
44,634
 
Changes in operating assets and liabilities:
               
Prepaid expenses
   
39,426
     
17,386
 
Other current assets
   
(12,385
)
   
44,621
 
Accounts payable
   
87,208
     
35,337
 
Accrued expenses
   
40,173
     
42,064
 
Accrued expenses-related parties
   
-
     
100,000
 
Accrued interest
   
85,728
     
75,042
 
Accrued interest - related parties
   
13,244
     
2,244
 
Accrued compensation
   
80,362
     
95,742
 
Net Cash Used In Operating Activities
   
(1,412,927
)
   
(1,374,237
)
                 
Cash Flows From Financing Activities:
               
Proceeds from issuance of notes payable
   
500,000
     
135,000
 
Proceeds from issuance of notes payable - related party
   
-
     
225,000
 
Proceeds from issuance of preferred stock - Series A
   
50,000
     
1,050,705
 
Proceeds from cash advance
   
500,000
     
-
 
Net Cash Provided By Financing Activities
   
1,050,000
     
1,410,705
 
                 
Net (Decrease) Increase In Cash
   
(362,927
)
   
36,468
 
                 
Cash - Beginning of Period
   
371,048
     
3,735
 
Cash - End of Period
 
$
8,121
   
$
40,203
 
                 
Supplemental Disclosures of Cash Flow Information:
               
                 
Cash paid for:
               
Interest
 
$
18,030
   
$
-
 
                 
Non-cash investing and financing activities:
               
Preferred stock issued in exchange for notes and advances payable
 
$
-
   
$
2,118,355
 
Reduction of additional paid-in capital for public offering issuance costs that were previously paid
 
$
-
   
$
(54,543
)
Accrual of earned preferred stock dividends
 
$
(327,626
)
 
$
(150,630
)
Common stock issued in connection with payment of Series A Convertible Preferred Stock dividends in-kind
 
$
323,484
   
$
-
 
Stock issued in connection with issuances and extensions of notes payable
 
$
-
   
$
143,438
 
Warrants and conversion options issued in connection with issuance and extension of notes payable
 
$
49,600
   
$
67,080
 
 
 
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 

4


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 in 2012 and is the parent company of Cell Source Limited (“CSL”), a 100% owned subsidiary which was founded in Israel in 2011 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 Cell Source Limited by Yeda Research and Development Company Limited, an Israeli corporation ("Yeda") (See Note 7, Related Party Transactions). The Company’s target indications include: lymphoma, leukemia and multiple myeloma through the facilitation of safer and more accessible stem cell (e.g. bone marrow) transplantation acceptance, treatment of end stage kidney disease and other non-malignant organ diseases through improved organ transplantation (broadened donor pool, reduced dependence on post-transplant anti-rejection therapy), and ultimately treating a variety of cancers and non-malignant diseases.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for a fair presentation of the condensed consolidated financial position of the Company as of September 30, 2018 and the condensed consolidated results of its operations for the three and nine months ended September 30, 2018 and 2017 and cash flows for the nine months ended September 30, 2018 and 2017. The results of operations for the three and nine months ended September 30, 2018 are not necessarily indicative of the operating results for the full year ending December 31, 2018 or any other period. It is recommended that these condensed consolidated financial statements be read in conjunction with the audited consolidated financial statements and related disclosures of the Company as of December 31, 2017 and for the year then ended which were included in the Company's Annual Report on Form 10-K for the years ended December 31, 2017 and 2016 filed with the Securities and Exchange Commission (“SEC”) on July 25, 2018.

Note 2 - Going Concern and Management Plans
 
During the nine months ended September 30, 2018, the Company had not generated any revenues, had a net loss of approximately $1,558,000 and had used cash in operations of approximately $1,413,000. As of September 30, 2018, the Company had a working capital deficiency of approximately $6,069,000 and an accumulated deficit of approximately $16,111,000. These conditions raise substantial doubt about the Company’s ability to continue as a going concern within twelve months from the date these financial statements are issued.

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

The accompanying condensed consolidated financial statements have been prepared in conformity with U.S. GAAP which contemplate continuation of the Company as a going concern and the realization of assets and satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presented in the financial statements do not necessarily purport to represent realizable or settlement values. The condensed consolidated financial statements do not include any adjustment that might result from the outcome of this uncertainty.
 
On October 10, 2018, the Company received an advance of $500,000 from an investor who ultimately invested such funds in Series A Preferred Stock as described in Note 8, Subsequent Events. 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.
 
5



Note 3 - Summary of Significant Accounting Policies
 
The Company’s significant accounting policies and applicable recently released accounting standards are disclosed in Note 3, Summary of Significant Accounting Policies, in the Company’s Annual Report on Form 10-K for the years ended December 31, 2017 and 2016 filed with the SEC on July 25, 2018. Since December 31, 2017, there have been no material changes to the Company’s significant accounting policies, except as noted below.

Loss Per Share
 
The Company computes basic net loss per share by dividing net loss by the weighted average number of common shares outstanding for the period and excludes the effects of any potentially dilutive securities. Diluted earnings per share includes the dilution that would occur upon the exercise or conversion of all dilutive securities into common stock using the “treasury stock” and/or “if converted” methods, as applicable. Weighted average shares outstanding for the three and nine months ended September 30, 2018 and 2017 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 following securities are excluded from the calculation of weighted average dilutive common shares because their inclusion would have been anti-dilutive: 
 
   
September 30,
 
   
2018
   
2017
 
             
Warrants
 
 
11,915,481
   
 
11,615,481
 
Convertible notes
   
1,549,810
     
1,669,783
 
Convertible preferred stock
   
6,504,570
     
-
 
                 
Total
   
19,969,861
     
13,285,264
 
 
Convertible notes and convertible preferred stock are assumed to be converted at the rate of $0.75 per common share, which is the conversion price as of September 30, 2018. However, such conversion rates are subject to adjustment under certain circumstances as discussed in the audited consolidated financial statements of the Company as of December 31, 2017 and for the year then ended which were included in the Company's Annual Report on Form 10-K for the years ended December 31, 2017 and 2016 filed with the SEC on July 25, 2018.

Recent Accounting Standards

In August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2016-15, “Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”). ASU 2016-15 makes eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017. ASU 2016-15 requires adoption on a retrospective basis unless it is impracticable to apply, in which case the Company would be required to apply the amendments prospectively as of the earliest date practicable. The Company adopted ASU 2016-15 effective January 1, 2018 with no material impact on its condensed consolidated cash flows and related disclosures.

In May 2017, the FASB issued ASU 2017-09, “Compensation – Stock Compensation (Topic 718)” (“ASU 2017-09”). ASU 2017-09 provides clarity on the accounting for modifications of stock-based awards. ASU 2017-09 requires adoption on a prospective basis in the annual and interim periods beginning after December 15, 2017. The Company adopted ASU 2017-09 effective January 1, 2018 with no material impact on its condensed consolidated financial statements or disclosures.

In June 2018, the FASB issued ASU No. 2018-07, “Compensation — Stock Compensation (Topic 718),” (“ASU 2018-07”). ASU 2018-07 is intended to reduce cost and complexity of financial reporting for non-employee share-based payments. Currently, the accounting requirements for non-employee and employee share-based payments are significantly different. ASU 2018-07 expands the scope of Topic 718, which currently only includes share-based payments to employees, to include share-based payments to non-employees for goods or services. Consequently, the accounting for share-based payments to non-employees and employees will be substantially aligned. This ASU supersedes Subtopic 505-50, “Equity — Equity-Based Payments to Nonemployees”. The amendments to ASU 2018 - 07 are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, but no earlier than a company’s adoption date of ASU No. 2014-09, (Topic 606), “Revenue from Contracts with Customers”. The Company is currently evaluating ASU 2018-07 and its impact on its condensed consolidated financial statements or disclosures.
 

6


In July 2018, the FASB issued ASU No. 2018-09, “Codification Improvements” (“ASU 2018-09”). These amendments provide clarifications and corrections to certain ASC subtopics including the following: Income Statement - Reporting Comprehensive Income – Overall (Topic 220-10), Debt - Modifications and Extinguishments (Topic 470-50), Distinguishing Liabilities from Equity – Overall (Topic 480-10), Compensation - Stock Compensation - Income Taxes (Topic 718-740), Business Combinations - Income Taxes (Topic 805-740), Derivatives and Hedging – Overall (Topic 815-10), and Fair Value Measurement – Overall (Topic 820-10). The majority of the amendments in ASU 2018-09 will be effective in annual periods beginning after December 15, 2018. The Company is currently evaluating and assessing the impact this guidance will have on its unaudited condensed consolidated financial statements.

In August 2018, the FASB issued Accounting Standards Update No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). The amendments in ASU 2018-13 modify the disclosure requirements on fair value measurements based on the concepts in the Concepts Statement, including the consideration of costs and benefits. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The amendments are effective for fiscal years beginning after December 15, 2020. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating ASU 2018-13 and its impact on its financial position, results of operation and cash flows.
 
In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532, “Disclosure Update and Simplification,” amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded the disclosure requirements on the analysis of stockholders’ equity for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders’ equity presented in the balance sheet must be provided in a note or separate statement. The analysis should present a reconciliation of the beginning balance to the ending balance of each period for which a statement of comprehensive income is required to be filed. This final rule is effective on November 5, 2018. The Company is evaluating the impact of this guidance on its condensed financial statements. The Company anticipates its first presentation of changes in stockholders’ equity will be included in its Form 10-Q for the quarter ended March 31, 2019.
 
The Company has evaluated all new accounting standards that are in effect and may impact its condensed consolidated financial statements and does not believe that there are any other new accounting standards that have been issued that might have a material impact on its financial position or results of operations.

Note 4 - Fair Value
 
The Company determines the estimated fair value of amounts presented in these condensed consolidated financial statements using available market information and appropriate methodologies. However, considerable judgment is required in interpreting market data to develop the estimates of fair value. The estimates presented in the financial statements are not necessarily indicative of the amounts that could be realized in a current exchange between buyer and seller. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. These fair value estimates were based upon pertinent information available as of September 30, 2018 and December 31, 2017, and, as of those dates, the carrying value of all amounts approximates fair value. The Company estimated the fair value of its restricted common stock during the three and nine months ended September 30, 2018 based upon: i) a third-party valuation of its common stock as of December 31, 2017; ii) observations of subsequent sales of its Preferred Stock (which is convertible into common stock); and iii) the thinly traded volume and closing prices of its common stock.

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

7



Both observable and unobservable inputs may be used to determine the fair value of positions that are classified within the Level 3 category. As a result, the unrealized gains and losses for assets within the Level 3 category presented in the tables below may include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in historical company data) inputs. The following table summarizes the valuation of the Company’s derivatives by the above fair value hierarchy levels as of September 30, 2018 and December 31, 2017 using quoted prices in active markets for identical assets (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3):
 
 
       
Quoted Prices
             
         
In Active
   
Significant
       
         
Markets for
   
Other
   
Significant
 
         
Identical
   
Observable
   
Unobservable
 
         
Liabilities
   
Inputs
   
Inputs
 
   
Total
   
(Level 1)
   
(Level 2)
   
(Level 3)
 
                         
Accrued compensation - warrants
 
$
136,439
   
$
-
   
$
-
   
$
136,439
 
Derivative liability
   
287,400
     
-
     
-
     
287,400
 
                                 
Balance - September 30, 2018
 
$
423,839
   
$
-
   
$
-
   
$
423,839
 
                                 
Accrued compensation - warrants
 
$
79,262
   
$
-
   
$
-
   
$
79,262
 
Derivative liability
   
628,200
     
-
     
-
     
628,200
 
                                 
Balance - December 31, 2017
 
$
707,462
   
$
-
   
$
-
   
$
707,462
 
 
Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. The Company’s Level 3 liabilities shown in the above table consist of warrants with “down-round protection” as the Company is unable to determine if it will have sufficient authorized common stock to settle such arrangements and warrants deemed to be derivative liabilities according to the Company’s sequencing policy in accordance with ASC 815-40-35-12.
 
Assumptions utilized in the valuation of Level 3 liabilities are described as follows:
 
 
 
For the Three Months Ended
   
For the Nine Months Ended
 
 
 
September 30,
   
September 30,
 
 
 
2018
   
2017
   
2018
   
2017
 
 
                       
Risk-free interest rate
   
2.12% - 2.91
%
   
1.04% - 1.77
%
   
1.73% - 2.91
%
   
0.76% - 1.93
%
Expected term (years)
   
0.08 - 4.41
     
0.25 - 4.25
     
0.08 - 5.00
     
0.25 - 4.76
 
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 has not been publicly traded for a sufficiently long period of time or with significant volume, the Company is utilizing an expected volatility based on a review of the historical volatilities, over a period of time, equivalent to the expected life of the instrument being valued, of similarly positioned public companies within its industry. The risk-free interest rate was determined from the implied yields from U.S. Treasury zero-coupon bonds with a remaining term consistent with the expected term of the instrument being valued.
 

8


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, 2018:
 
   
Accrued
   
Derivative
       
   
Compensation
   
Liabilities
   
Total
 
                   
Balance - December 31, 2017
 
$
79,262
   
$
628,200
   
$
707,462
 
                         
Accrued compensation - warrants
   
57,000
     
49,600
     
106,600
 
Change in fair value
   
177
     
(390,400
)
   
(390,223
)
                         
Balance - September 30, 2018
 
$
136,439
   
$
287,400
   
$
423,839
 

The Company’s significant financial instruments such as cash, accounts payable, accrued expenses and notes payable were deemed to approximate fair value due to their short-term nature. See Note 5, Notes Payable, for details associated with the issuance of warrants which were deemed to be derivative liabilities.

Note 5 – Notes Payable

a)
On February 21, 2018, the Company issued two notes payable in the aggregate principal amount of $400,000 and warrants for the purchase of a total of 240,000 shares of common stock at $0.75 per share for a period of five years. These notes did not accrue interest, matured on May 21, 2018, and had an effective interest rate of 40% per annum.  The warrants were 100% vested upon issuance, valued at $39,700 on the date of issuance, and recorded as a debt discount. The discount was amortized to expense over the term of the notes.

b)
On February 26, 2018, the Company issued a note payable in the aggregate principal amount of $100,000 and a warrant for the purchase of a total of 60,000 shares of common stock at $0.75 per share for a period of five years. The note did not accrue interest, matured on May 26, 2018, and had an effective interest rate of 40% per annum.  The warrant was 100% vested upon issuance, valued at $9,900 on the date of issuance, and recorded as a debt discount. The discount was amortized to expense over the term of the note.

During the three months ended September 30, 2018 and 2017, the Company recorded interest expense of $30,923 and $33,445, respectively, and interest expense for related party debt of $756 and $756, respectively. During the nine months ended September 30, 2018 and 2017, the Company recorded interest expense of $124,774 and $144,112, respectively, and interest expense for related party debt of $49,244 and $2,244, respectively.

During the three months ended September 30, 2018 and 2017, the Company recorded amortization of debt discount of $0 and $49,502, respectively, and amortization of debt discount for related party debt of $0 and $18,904, respectively. During the nine months ended September 30, 2018 and 2017, the Company recorded amortization of debt discount of $173,099 and $339,133, respectively, and amortization of debt discount for related party debt of $28,356 and $30,040, respectively.

As of September 30, 2018 and the date of this filing, notes payable and convertible notes payable with face values totaling $2,973,000 were past due and are classified as current liabilities on the condensed consolidated balance sheet as of September 30, 2018. Such notes continue to accrue interest and all relevant penalties have been accrued as of September 30, 2018. None of the holders have issued a notice of default. The Company is in negotiations with those holders to extend the maturity dates of such notes or to convert the principal and accrued interest into equity.

Note 6 – Stockholders’ Deficiency

On March 3, 2018, the Company raised $50,000 through the sale of 6,667 shares of Series A Preferred Stock at $7.50 per share.

On August 3, 2018, the Company received an advance of $500,000 from an investor who indicated plans to invest such funds in Series A Preferred Stock under the terms of the Private Placement Memorandum ("PPM"), which is included in advances payable on the condensed consolidated balance sheet as of September 30, 2018.  The terms of this PPM are described in Note 10 to the audited financial statements included in the Company's Annual Report on Form 10-K for the years ended December 31, 2017 and 2016 filed with the SEC on July 25, 2018.On November 6, 2018 and as more fully described in Note 8, Subsequent Events, this amount was invested in Series A Preferred Stock.

On August 21 and September 30, 2018, the Board approved the extension of the PPM through September 30, 2018 and November 28, 2018, respectively.
 

9


On August 21, 2018 and pursuant to the terms of the Series A Preferred Stock Certificate of Designation, the Board approved the issuance of 431,313 shares of common stock as payment-in-kind at the rate of $0.75 per share to reduce the accrued preferred dividend liability by $323,484.

During the three months ended September 30, 2018 and 2017, the Company accrued and recorded Series A Preferred Stock dividends of $110,666 and $74,261, respectively, with an increase in liabilities and a corresponding decrease in additional paid-in capital. During the nine months ended September 30, 2018 and 2017, the Company accrued and recorded Series A Preferred Stock dividends of $327,626 and $150,630, respectively, in the same manner.

During the three months ended September 30, 2018 and 2017, the Company recorded $0 and $351 of stock-based compensation expense related to warrants. During the nine months ended September 30, 2018 and 2017, the Company recorded $0 and $44,634 of stock-based compensation expense related to warrants. Such expense is recorded with a corresponding increase in additional paid-in capital. As of September 30, 2018, there was no unrecognized stock-based compensation expense.

Note 7 – Related Party Transactions

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

In connection with certain March 2018 amendments to the agreement, the provision for the payment of $200,000 in connection with reaching an equity financing threshold was permanently eliminated and the research budget was reduced such that the agreement now requires the following payments by the Company:
 
Three Months Ending:
   
Total
 
         
March 31, 2018
   
$
200,000
 
June 30, 2018
     
150,000
 
September 30, 2018
     
50,000
 
December 31, 2018
     
50,000
 
March 31, 2019
     
25,000
 
June 30, 2019
     
25,000
 
           
     
$
500,000
 
 
In addition, the parties amended the milestones and related completion dates. If the Company fails to achieve any of the milestones by the dates set forth in the agreement, Yeda is entitled to terminate the license upon written notice to the Company. To date, the Company has been deemed to have met all of the milestones and the next milestone in the agreement is January 1, 2022. Either Yeda or the Company may terminate the agreement and the license after the commitment of a material breach by the other party and in certain other instances as detailed in the agreement.Through September 30, 2018, the Company has made all required payments under the amended agreement.

During the three months ended September 30, 2018 and 2017, the Company recorded research and development expense of $72,527 and $200,000, respectively, and during the nine months ended September 30, 2018 and 2017, the Company recorded research and development expense of $375,151 and $600,000, respectively, in connection with the agreement with Yeda.

Note 8 – Subsequent Events

Advances

On October 10, 2018, the Company received an advance of $500,000 from an investor who indicated plans to invest such funds in Series A Preferred Stock under the terms of the PPM.

Investment in Preferred Stock

On November 6, 2018, the October 10, 2018 advance was combined with another $500,000 advance previously received from the same investor on August 3, 2018 and that party invested such funds totaling $1,000,000 in Series A Preferred Stock under the terms of the PPM at $7.50 per share and the Company issued 133,334 shares of such Preferred Stock.
 
10


 
Note 9 - Revision of Financial Statements for the Three and Six Months Ended June 30, 2018

During the course of preparing the Quarterly Report on Form 10-Q for the quarter ended September 30, 2018, the Company identified $80,000 in penalties related to certain notes payable that became past due during the three months ended June 30, 2018 and were not recorded during that period.  This had the effect of understating the Company's net loss for that period and its accrued liabilities as of June 30, 2018 by the same amount.

The penalties consisted of $23,000 in interest and $57,000 representing the value of 396,000 warrants to be issued for the purchase of common stock.  The value of such warrants was estimated using assumptions consistent with, and previously disclosed for, other warrant valuation calculations performed for the three months ended June 30, 2018.
 
The following tables reconcile as reported balances in the Quarterly Report on the Form 10-Q for the quarter ended June 30, 2018 to the as revised balances:
 
   
June 30, 2018
 
   
As Reported
   
Adjustment
   
As Revised
 
Condensed Consolidated Balance Sheet:
                 
                   
Total Current Assets
 
$
131,545
   
$
-
   
$
131,545
 
Total Assets
 
$
131,545
   
$
-
   
$
131,545
 
Total Current Liabilities
 
$
5,928,792
   
$
80,000
   
$
6,008,792
 
Total Liabilities
 
$
5,928,792
   
$
80,000
   
$
6,008,792
 
Total Stockholders' Deficiency
 
$
(5,797,247
)
 
$
(80,000
)
 
$
(5,877,247
)
 
   
For The Three Months Ended
June 30, 2018
   
For The Six Months Ended
June 30, 2018
 
   
As Reported
   
Adjustment
   
As Revised
   
As Reported
   
Adjustment
   
As Revised
 
Condensed Consolidated Statements of Operations:
                                   
                                     
Total Other Income (Expense)
 
$
63,178
   
$
(80,000
)
 
$
(16,822
)
 
$
11,106
   
$
(80,000
)
 
$
(68,894
)
Net Loss
 
$
(360,729
)
 
$
(80,000
)
 
$
(440,729
)
 
$
(1,072,913
)
 
$
(80,000
)
 
$
(1,152,913
)
Net Loss Applicable to Common Stockholders
 
$
(470,193
)
 
$
(80,000
)
 
$
(550,193
)
 
$
(1,289,873
)
 
$
(80,000
)
 
$
(1,369,873
)
Net Loss Per Share - Basic and Diluted
 
$
(0.02
)
         
$
(0.02
)
 
$
(0.05
)
         
$
(0.05
)
Weighted Average Number of 
Common Shares Outstanding
                                               
- Basic and Diluted
   
27,393,071
     
-
     
27,393,071
     
27,393,071
     
-
     
27,393,071
 
 
   
For The Six Months Ended
June 30, 2018
 
   
As Reported
   
Adjustment
   
As Revised
 
Condensed Consolidated Statement of Cash Flows:
                 
                   
Cash Flows From Operating Activities:
                 
Net Loss
 
$
(1,072,913
)
 
$
(80,000
)
 
$
(1,152,913
)
Adjustments to reconcile net loss to net cash used in operating activities
 
$
154,404
   
$
80,000
   
$
234,404
 
Net Cash Used In Operating Activities
 
$
(918,509
)
 
$
-
   
$
(918,509
)
 
In accordance with SEC Staff Accounting Bulletin No 108, the Company has evaluated this error, based on an analysis of quantitative and qualitative factors, as to whether it was material to the condensed consolidated statements of operations for the three and six months ended June 30, 2018 and if amendments of previously filed financial statements with the SEC are required. The Company has determined that the adjustment is qualitatively not material and, therefore, the error has no material impact to the condensed consolidated statements of operations for the three and six months ended June 30, 2018 or other prior periods.
 
11


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
The following discussion and analysis of the condensed consolidated results of operations and financial condition of Cell Source, Inc. ("CSI", “Cell Source”,  the “Company”, “us,” “we,” “our,”) as of September 30, 2018 and for the three and nine months ended September 30, 2018 and 2017 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 years ended December 31, 2017 and 2016 as filed with the SEC on July 25, 2018.

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 years ended December 31, 2017 and 2016 filed with the SEC on July 25, 2018.

Overview

We are a biotechnology company focused on developing cell therapy treatments based on the management of immune tolerance.  Our technology platform has been extensively tested by in vitro studies and confirmed in animal trials.  We continue to move forward towards clinical trials as more fully discussed in our Annual Report on Form 10-K for the years ended December 31, 2017 and 2016 which was filed with the SEC on July 25, 2018.
 
Consolidated Results of Operations

Three Months Ended September 30, 2018 Compared with the Three Months Ended September 30, 2017 

Research and Development
 
Research and development expense was $128,986 and $352,658 for the three months ended September 30, 2018 and 2017, respectively, a decrease of $223,672, or 63%, related to approximately $127,000 of decreased research expenses associated with our agreement with Yeda as we prepare for development in order to commence human clinical trials in the US, as well as decreased patent-related expenses.
 
General and Administrative
 
General and administrative expense was $359,660 and $202,480 for the three months ended September 30, 2018 and 2017, respectively, an increase of $157,180, or 78%, primarily related to increases in external consulting and professional fees in the 2018 period, which was due in part by our financing activities in 2017 which allowed us to increase operations and file our delinquent SEC reports in 2018.
 
Change in Fair Value of Derivative Liabilities
 
The change in fair value of derivative liabilities for the three months ended September 30, 2018 and 2017 was a gain of $115,500 and a gain of $149,200, respectively, which represents the changes in fair value of the warrants and conversion options that were deemed to be derivative liabilities. Such changes in fair value were attributable to warrants and conversion options drawing closer to their expiration dates.

Interest Expense
 
Interest expense for the three months ended September 30, 2018 and 2017 was $31,679 and $34,201, respectively, a decrease of $2,522, or 7%, as a result of a reduction in interest bearing notes payable outstanding attributable to conversion of certain notes into preferred stock.
 
Amortization of Debt Discount
 
Amortization of debt discount was $0 and $68,406 for the three months ended September 30, 2018 and 2017, respectively, which is associated with warrants and conversion options issued in connection with notes payable.
 

12



Nine Months Ended September 30, 2018 Compared with the Nine Months Ended September 30, 2017 

Research and Development
 
Research and development expense was $541,148 and $1,022,903 for the nine months ended September 30, 2018 and 2017, respectively, a decrease of $481,755, or 47%, related to approximately $225,000 of decreased research expenses associated with our agreement with Yeda as we prepare for development in order to commence human clinical trials in the US, as well as decreased patent-related expenses.
 
General and Administrative
 
General and administrative expense was $1,031,517 and $662,455 for the nine months ended September 30, 2018 and 2017, respectively, an increase of $369,062, or 56%, primarily related to increases in external consulting and professional fees in the 2018 period, which was due in part by our financing activities in 2017 which allowed us to increase operations and file our delinquent SEC reports in 2018.
 
Change in Fair Value of Derivative Liabilities
 
The change in fair value of derivative liabilities for the nine months ended September 30, 2018 and 2017 was a gain of $390,400 and a gain of $452,880, respectively, which represents the changes in fair value of the warrants and conversion options that were deemed to be derivative liabilities. Such changes in fair value were attributable to warrants and conversion options drawing closer to their expiration dates.
 
Interest Expense
 
Interest expense for the nine months ended September 30, 2018 and 2017 was $174,018 and $146,356, respectively, an increase of $27,662, or 19%, as a result of interest and penalties associated with certain notes payable that became past due in the three months ended June 30, 2018.
 
Amortization of Debt Discount
 
Amortization of debt discount was $201,455 and $369,173 for the nine months ended September 30, 2018 and 2017, respectively, which is associated with warrants and conversion options issued in connection with notes payable.

Loss on Exchange of Notes Payable for Preferred Shares
 
During the nine months ended September 30, 2017, we recognized $725,355 of losses on exchanges of notes payable for preferred shares. The losses recognized represent the excess value of the preferred shares as compared to the carrying value of the notes payable.

Liquidity and Going Concern
 
Our cash balances and working capital deficiencies as of September 30, 2018 and December 31, 2017 were as follows:
 
  September 30,  
December 31,
 
 
2018
 
2017
 
  (unaudited)      
         
Cash
 
$
8,121
   
$
371,048
 
Working capital deficiency
 
$
(6,069,254
)
 
$
(4,557,374
)
 
During the nine months ended September 30, 2018, we had not generated any revenues, had a net loss of approximately $1,558,000 and had used cash in operations of approximately $1,413,000. As of September 30, 2018, we had a working capital deficiency of approximately $6,069,000 and an accumulated deficit of approximately $16,111,000. In October 2018, we received a $500,000 together with an additional $500,000 advance previously received in August 2018. In November 2018, advances totaling $1,000,000 were converted into an investment in Series A Preferred Stock. These conditions raise substantial doubt about our ability to continue as a going concern within twelve months from the date these financial statements are issued. We are currently funding our operations on a month-to-month basis. While there can be no assurance that we will be successful, we are in active negotiations to raise additional capital.
 

13



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, 2018 and 2017, 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, 2018 and 2017 in the amounts of $1,412,927 and$1,374,237, respectively. The net cash used in operating activities for the nine months ended September 30, 2018 was primarily due to cash used to fund a net loss of $1,557,738, adjusted for net non-cash income in the aggregate amount of $188,945, partially offset by $333,756 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, 2017 was primarily due to cash used to fund a net loss of $2,473,362, adjusted for net non-cash expenses in the aggregate amount of $686,689, partially offset by $412,436of net cash provided by changes in the levels of operating assets and liabilities.
 
Net Cash Provided by Financing Activities
 
Net cash provided by financing activities for the nine months ended September 30, 2018 and 2017 was $1,050,000 and $1,410,705, respectively. The net cash provided by financing activities during the nine months ended September 30, 2018 was attributable to $500,000 received from the issuance of notes payable, $500,000 received as an advance from an investor who indicated plans to invest such funds in Series A Preferred Stock, and $50,000 of received from the issuance of Series A preferred stock. The net cash provided by financing activities during the nine months ended September 30, 2017 was attributable to $135,000 received from the issuance of notes payable, $225,000 received from the issuance of notes payable to related parties, and $1,050,705 received from the issuance of Series A preferred stock.

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.
 
Recent Accounting Standards
 
For a description of our recently issued and adopted accounting pronouncements, 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.
 

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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 Quarterly 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, 2018, our disclosure controls and procedures were not effective due to the material weakness described herein.

A material weakness is a control deficiency (within the meaning of the Public Company Accounting Oversight Board (PCAOB) Auditing Standard No. 2) or combination of control deficiencies that result in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. Management has identified the following material weakness:

Due to a lack of financial resources, we were unable to file our annual reports on Form 10-K for the years ended December 31, 2017 and December 31, 2016 and the quarterly reports on Form 10-Q for the periods ended March 31, 2017, June 30, 2017, September 30, 2017, March 31, 2018 and June 30, 2018 on a timely basis. Management evaluated the lack of financial resources in its assessment of our reporting controls and procedures and has concluded that the control deficiency represented a material weakness.

Planned Remediation

Management’s efforts to remediate the material weakness include raising funds and to seek new resources to alleviate this material weakness and to file all necessary regulatory reports on a timely basis. There can be no assurance that the necessary funds and resources will be obtained and the material weakness will be alleviated.

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, 2018 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.
 
We are not currently a party to any material legal proceedings.

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 years ended December 31, 2017 and 2016 which was filed with the SEC on July 25, 2018.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
 
None.

Item 3. Defaults Upon Senior Securities.
 
As of September 30, 2018 and the date of this filing, notes payable and convertible notes payable with face values totaling $2,973,000 were past due and are classified as current liabilities on the condensed consolidated balance sheet as of September 30, 2018.  Such notes continue to accrue interest and all relevant penalties have been accrued as of September 30, 2018. None of the holders have issued a notice of default. We are in negotiations with those 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.
 
Exhibit
       
Number
     
Description
         
31
 
 
 
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of the Chief Executive Officer and Chief Financial Officer
32
 
*
 
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of the Chief Executive Officer and Chief Financial Officer
101.INS
 
 
 
XBRL Instance Document
101.SCH
 
 
 
XBRL Schema Document
101.CAL
 
 
 
XBRL Calculation Linkbase Document
101.DEF
 
 
 
XBRL Definition Linkbase Document
101.LAB
 
 
 
XBRL Label Linkbase Document
101.PRE
 
 
 
XBRL Presentation Linkbase Document


*  
This certification is being furnished and shall not be deemed "filed" with the SEC for purposes of Section 18 of the Exchange Act, or otherwise be subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.
 
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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 14, 2018
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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