CELL SOURCE, INC. During the three months ended
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
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Note 3 - Summary of Significant Accounting Policies
Since the date of the Annual Report on Form 10-K for the year ended
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 months ended
The common stock equivalents associated with the following securities are excluded from the calculation of weighted average dilutive common shares because their inclusion would have been anti-dilutive:
March 31,
2020 2019
Options 3,782,004 -
Warrants 4,125,810 6,374,157
Convertible notes 2,555,477 1,069,101
Convertible preferred stock 12,584,160 10,489,890
Total 23,047,451 17,933,148
Convertible notes are assumed to be converted at the rate of
Reclassifications
Certain prior period accrued liabilities have been reclassified from accrued compensation to accrued interest to conform to the fiscal 2020 presentation. These reclassifications have no impact on the previously reported net loss.
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Note 4 - Fair Value
During the three months ended
The following table summarizes the Company's instruments recorded at fair value
as of
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 $ 38,229 $ - $ - $ 38,229
Accrued compensation -
warrants 6,926 - - 6,926
Accrued interest -
warrants 65,592 - - 65,592
Accrued interest -
warrants - related party 126,350 - - 126,350
Balance - March 31, 2020 $ 237,097 $ - $ - $ 237,097
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
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
March 31,
2020 2019
Risk-free interest rate 0.33% - 1.55 % 2.21% - 2.44 % Expected term (years) 0.52 - 5.00
0.02 - 5.00
Expected volatility 110 % 110 %
Expected dividends 0.00 % 0.00 %
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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
The following table provides a summary of the changes in fair value, including net transfers in and/or out, of all Level 3 liabilities measured at fair value on a recurring basis using unobservable inputs during the three months endedMarch 31, 2020 : Accrued Accrued Derivative Interest Compensation Liability Total Balance - December 31, 2019$ 173,275 $ 57,952 $ 351,900 $ 583,127 Accrued compensation - common stock - 4,626 - 4,626 Accrued interest - common stock 56,875 - - 56,875 Accrued interest - warrants 8,571 - - 8,571 Accrued interest - warrants - related party 11,243 - - 11,243 Change in fair value (1,147 ) (128 ) (16,977 ) (18,252 ) Issuance of warrants - (10,877 ) 10,907 30 Issuance of common stock (56,875 ) (6,418 ) - (63,293 ) Reclassification of derivative liabilities to equity - - (345,830 ) (345,830 ) Balance - March 31, 2020$ 191,942 $ 45,155 $ -$ 237,097
As of
Note 5 - Notes Payable and Convertible Notes Payable
As of
During the three months ended
Convertible Notes Payable
On
On
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On various dates from
On
Note 6 - Stockholders' Deficiency
Common Stock
On
See Note 5, Notes Payable and Convertible Notes Payable for additional details associated with the issuance of common stock.
Series A Convertible Preferred Stock
On
On various dates from
During the three months ended
Stock Warrants
On
Stock-Based Compensation
During the three months ended
Note 7 - Related Party Transactions
In 2011, the Company entered into a Research and License Agreement with Yeda for Veto Cell technology. As Yeda is a founder and a significant shareholder of the Company, it is a related party.
During the three months ended
As of
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Note 8 - Commitments and Contingencies
MD Anderson Sponsored Research Agreements
The Company recognized
Litigation
Certain conditions may exist as of the date the condensed consolidated financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company, or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims, as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company's consolidated financial statements. If the assessment indicates that a potential material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability and an estimate of the range of possible losses, if determinable and material, would be disclosed.
In
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
Note 9 - Subsequent Events
The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the financial statements were issued. Management is currently evaluating the impact of the COVID-19 pandemic on the industry and has concluded that, while it is reasonably possible that COVID-19 could have a negative effect on the Company's financial position and results of operations, the specific impact is not readily determinable as of the date of these financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Advances
On
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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
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
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
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, 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
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.
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· 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
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
Research and Development
Research and development expense was
General and Administrative
General and administrative expense, which is associated with external consulting
and professional fees, payroll and stock-based compensation expenses, was
Change in Fair Value of Derivative Liabilities
The change in fair value of derivative liabilities for the three months ended
Interest Expense
Interest expense for the three months ended
Amortization of Debt Discount
Amortization of debt discount was
Loss on Extinguishment of Debt
During the three months ended
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Loss on Exchange of Notes Payable for Series A Convertible Preferred Stock
During the three months ended
Liquidity and Going Concern
We measure our liquidity in a number of ways, including the following:
March 31, December 31,
2020 2019
(unaudited)
Cash $ 16,522 $ 27,908
Working capital deficiency
During the three months ended
Our ability to continue our operations is dependent on the execution of management's plans, which include the raising of capital through the debt and/or equity markets, until such time that funds provided by operations are sufficient to fund working capital requirements. We may need to incur additional liabilities with certain related parties to sustain our existence. If we were not to continue as a going concern, we would likely not be able to realize our assets at values comparable to the carrying value or the fair value estimates reflected in the balances set out in the preparation of our financial statements.
There can be no assurances that we will be successful in generating additional cash from equity or debt financings or other sources to be used for operations. Should we not be successful in obtaining the necessary financing to fund our operations, we would need to curtail certain or all operational activities and/or contemplate the sale of our assets, if necessary.
During the three months ended
We experienced negative cash flows from operating activities for the three
months ended
Net Cash Provided by Financing Activities
Net cash provided by financing activities for the three months ended
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
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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.
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