☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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) |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
None | N/A | N/A |
Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
Emerging growth company | ☐ |
PART I - FINANCIAL INFORMATION | ||
Item 1. Financial Statements. | 1 | |
Condensed Consolidated Balance Sheets as of | ||
September 30, 2019 (Unaudited) and December 31, 2018 | 1 | |
Unaudited Condensed Consolidated Statements of Operations for the | ||
Three and Nine Months Ended September 30, 2019 and 2018 | 2 | |
Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Deficiency for the | ||
Nine Months Ended September 30, 2019 and 2018 | 3 | |
Unaudited Condensed Consolidated Statements of Cash Flows for the | ||
Nine Months Ended September 30, 2019 and 2018 | 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. | 17 | |
SIGNATURES | 18 |
September 30, | December 31, | |||||||
2019 | 2018 | |||||||
(Unaudited) | ||||||||
Assets | ||||||||
Current Assets: | ||||||||
Cash | $ | 8,831 | $ | 18,934 | ||||
Prepaid expenses | 40,315 | 38,926 | ||||||
Other current assets | 28,301 | 7,932 | ||||||
Total Assets | $ | 77,447 | $ | 65,792 | ||||
Liabilities and Stockholders' Deficiency | ||||||||
Current Liabilities: | ||||||||
Accounts payable | $ | 448,523 | $ | 277,786 | ||||
Accrued expenses | 1,121,881 | 532,790 | ||||||
Accrued expenses - related party | 105,333 | 72,000 | ||||||
Accrued interest | 335,659 | 345,948 | ||||||
Accrued interest - related parties | 29,803 | 27,559 | ||||||
Accrued compensation | 651,202 | 587,734 | ||||||
Accrued compensation - related party | 103,526 | 55,083 | ||||||
Advances payable | 375,500 | 100,000 | ||||||
Advances payable - related party | 100,000 | 100,000 | ||||||
Notes payable, net of debt discount of $5,392 and $0, as of September 30, 2019 and December 31, 2018, respectively | 1,107,608 | 1,463,000 | ||||||
Notes payable - related parties | 150,000 | 150,000 | ||||||
Convertible notes payable, net of debt discount of $2,242 and $0, as of September 30, 2019 and December 31, 2018, respectively | 610,758 | 835,000 | ||||||
Convertible notes payable - related parties | 225,000 | 225,000 | ||||||
Derivative liabilities | 380,100 | 200,500 | ||||||
Accrued dividend payable | 247,102 | 13,563 | ||||||
Total Liabilities | 5,991,995 | 4,985,963 | ||||||
Commitments and contingencies (Note 8) | ||||||||
Stockholders' Deficiency: | ||||||||
Convertible Preferred Stock, $0.001 par value, 10,000,000 shares authorized; Series A Convertible Preferred Stock, 1,335,000 shares designated, 1,168,759 and 860,291 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively; liquidation preference of $9,012,794 and $6,465,745 as of September 30, 2019 and December 31, 2018, respectively | 1,169 | 860 | ||||||
Common Stock, $0.001 par value, 200,000,000 shares authorized, 26,479,471 and 26,077,611 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively | 26,479 | 26,078 | ||||||
Additional paid-in capital | 14,627,597 | 11,723,224 | ||||||
Accumulated deficit | (20,569,793 | ) | (16,670,333 | ) | ||||
Total Stockholders' Deficiency | (5,914,548 | ) | (4,920,171 | ) | ||||
Total Liabilities and Stockholders' Deficiency | $ | 77,447 | $ | 65,792 |
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Operating Expenses: | ||||||||||||||||
Research and development | $ | 1,158,757 | $ | 56,459 | $ | 2,269,269 | $ | 165,997 | ||||||||
Research and development - related party | 33,333 | 72,527 | 83,333 | 375,151 | ||||||||||||
Selling, general and administrative | 244,609 | 359,660 | 985,037 | 1,031,517 | ||||||||||||
Total Operating Expenses | 1,436,699 | 488,646 | 3,337,639 | 1,572,665 | ||||||||||||
Loss From Operations | (1,436,699 | ) | (488,646 | ) | (3,337,639 | ) | (1,572,665 | ) | ||||||||
Other (Expense) Income: | ||||||||||||||||
Interest expense | (26,418 | ) | (30,923 | ) | (159,202 | ) | (124,774 | ) | ||||||||
Interest expense - related parties | (683 | ) | (756 | ) | (1,977 | ) | (49,244 | ) | ||||||||
Amortization of debt discount | (3,566 | ) | - | (10,095 | ) | (173,099 | ) | |||||||||
Amortization of debt discount - related parties | - | - | - | (28,356 | ) | |||||||||||
Change in fair value of derivative liabilities | 33,500 | 115,500 | 118,500 | 390,400 | ||||||||||||
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 debt | - | - | (1,504 | ) | - | |||||||||||
Gain on forgiveness of accrued expenses | - | - | 38,427 | - | ||||||||||||
Total Other (Expense) Income | (51,267 | ) | 83,821 | (561,821 | ) | 14,927 | ||||||||||
Net Loss | (1,487,966 | ) | (404,825 | ) | (3,899,460 | ) | (1,557,738 | ) | ||||||||
Dividend attributable to Series A preferred stockholders | (197,911 | ) | (110,666 | ) | (534,919 | ) | (327,626 | ) | ||||||||
Net Loss Applicable to Common Stockholders | $ | (1,685,877 | ) | $ | (515,491 | ) | $ | (4,434,379 | ) | $ | (1,885,364 | ) | ||||
Net Loss Per Common Share - Basic and Diluted | $ | (0.06 | ) | $ | (0.02 | ) | $ | (0.16 | ) | $ | (0.07 | ) | ||||
Weighted Average Common Shares Outstanding - | ||||||||||||||||
Basic and Diluted | 28,523,306 | 27,580,598 | 28,262,759 | 27,456,267 |
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 | ||||||||||||||||||||||||||||
Convertible Preferred | Total | |||||||||||||||||||||||||||
Stock - Series A | Common Stock | Additional | Accumulated | Stockholders' | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Paid-In Capital | Deficit | Deficiency | ||||||||||||||||||||||
Balance, January 1, 2019 | 860,291 | $ | 860 | 26,077,611 | $ | 26,078 | $ | 11,723,224 | $ | (16,670,333 | ) | $ | (4,920,171 | ) | ||||||||||||||
Issuance of Series A Convertible Preferred Stock for cash | 43,331 | 43 | - | - | 324,957 | - | 325,000 | |||||||||||||||||||||
Issuance of Series A Convertible Preferred Stock in exchange for notes payable | 145,367 | 145 | - | - | 1,090,109 | - | 1,090,254 | |||||||||||||||||||||
Series A Convertible Preferred Stock dividends: Accrual of earned dividends | - | - | - | - | (148,035 | ) | - | (148,035 | ) | |||||||||||||||||||
Net loss | - | - | - | - | - | (1,458,509 | ) | (1,458,509 | ) | |||||||||||||||||||
Balance, March 31, 2019 | 1,048,989 | 1,048 | 26,077,611 | 26,078 | 12,990,255 | (18,128,842 | ) | (5,111,461 | ) | |||||||||||||||||||
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 | ) |
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018 | ||||||||||||||||||||||||||||
Convertible Preferred | Total | |||||||||||||||||||||||||||
Stock - Series A | Common Stock | Additional | Accumulated | Stockholders' | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Paid-In Capital | Deficit | Deficiency | ||||||||||||||||||||||
Balance, January 1, 2018 | 643,790 | $ | 644 | 25,349,236 | $ | 25,349 | $ | 9,969,520 | $ | (14,552,887 | ) | $ | (4,557,374 | ) | ||||||||||||||
Issuance of Series A Convertible Preferred Stock for cash | 6,667 | 6 | - | - | 49,994 | - | 50,000 | |||||||||||||||||||||
Series A Convertible Preferred Stock dividends: Accrual of earned dividends | - | - | - | - | (107,496 | ) | - | (107,496 | ) | |||||||||||||||||||
Net loss | - | - | - | - | - | (712,184 | ) | (712,184 | ) | |||||||||||||||||||
Balance, March 31, 2018 | 650,457 | 650 | 25,349,236 | 25,349 | 9,912,018 | (15,265,071 | ) | (5,327,054 | ) | |||||||||||||||||||
Series A Convertible Preferred Stock dividends: Accrual of earned dividends | - | - | - | - | (109,464 | ) | - | (109,464 | ) | |||||||||||||||||||
Net loss | - | - | - | - | - | (440,729 | ) | (440,729 | ) | |||||||||||||||||||
Balance, June 30, 2018 | 650,457 | 650 | 25,349,236 | 25,349 | 9,802,554 | (15,705,800 | ) | (5,877,247 | ) | |||||||||||||||||||
Series A Convertible Preferred Stock dividends: Accrual of earned dividends | - | - | - | - | (110,666 | ) | - | (110,666 | ) | |||||||||||||||||||
Payment of dividends in-kind | - | - | 431,313 | 432 | 323,052 | - | 323,484 | |||||||||||||||||||||
Net loss | - | - | - | - | - | (404,825 | ) | (404,825 | ) | |||||||||||||||||||
Balance, September 30, 2018 | 650,457 | $ | 650 | 25,780,549 | $ | 25,781 | $ | 10,014,940 | $ | (16,110,625 | ) | $ | (6,069,254 | ) |
For The Nine Months Ended September 30, | ||||||||
2019 | 2018 | |||||||
Cash Flows From Operating Activities: | ||||||||
Net loss | $ | (3,899,460 | ) | $ | (1,557,738 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Change in fair value of derivative liabilities | (118,500 | ) | (390,400 | ) | ||||
Warrant modification expense | 283,500 | - | ||||||
Amortization of debt discount | 10,095 | 201,455 | ||||||
Loss on exchange of notes payable for preferred shares | 262,470 | - | ||||||
Loss on extinguishment of debt | 1,504 | - | ||||||
Gain on forgiveness of accrued expenses | (38,427 | ) | - | |||||
Stock-based compensation: | ||||||||
Common Stock | 1,750 | - | ||||||
Options | 825,100 | - | ||||||
Warrants | 78,791 | - | ||||||
Changes in operating assets and liabilities: | ||||||||
Prepaid expenses | (1,389 | ) | 39,426 | |||||
Other current assets | (20,369 | ) | (12,385 | ) | ||||
Accounts payable | 170,737 | 87,208 | ||||||
Accrued expenses | 455,602 | 40,173 | ||||||
Accrued expenses-related parties | 33,333 | - | ||||||
Accrued interest | 159,350 | 85,728 | ||||||
Accrued interest - related parties | 2,244 | 13,244 | ||||||
Accrued compensation | 69,797 | 80,362 | ||||||
Net Cash Used In Operating Activities | (1,723,872 | ) | (1,412,927 | ) | ||||
Cash Flows From Financing Activities: | ||||||||
Proceeds from issuance of notes payable | 120,000 | 500,000 | ||||||
Proceeds from issuance of convertible notes payable | 165,000 | - | ||||||
Proceeds from advances payable | 275,500 | 500,000 | ||||||
Repayment of notes payable | (70,000 | ) | - | |||||
Proceeds from issuance of preferred stock - Series A | 1,223,269 | 50,000 | ||||||
Net Cash Provided By Financing Activities | 1,713,769 | 1,050,000 | ||||||
Net Decrease In Cash | (10,103 | ) | (362,927 | ) | ||||
Cash - Beginning of Period | 18,934 | 371,048 | ||||||
Cash - End of Period | $ | 8,831 | $ | 8,121 | ||||
Supplemental Disclosures of Cash Flow Information: | ||||||||
Cash paid for: | ||||||||
Interest | $ | - | $ | 18,030 | ||||
Income taxes | $ | - | $ | - | ||||
Non-cash investing and financing activities: | ||||||||
Preferred stock issued in exchange for notes and advances payable | $ | 1,090,254 | $ | - | ||||
Repayment of convertible note payable and accrued interest by third party | $ | 133,488 | $ | - | ||||
Accrual of earned preferred stock dividends | $ | (534,919 | ) | $ | (327,626 | ) | ||
Common stock issued in connection with payment of Series A Convertible Preferred Stock dividends in-kind | $ | 301,379 | $ | 323,484 | ||||
Warrants and conversion options issued in connection with issuance and extension of notes payable | $ | 15,600 | $ | 49,600 | ||||
Original issue discount in connection with convertible note payable | $ | 6,000 | $ | - | ||||
Extinguishment of conversion option in connection with repayment of notes payable | $ | 1,000 | $ | - |
September 30, | ||||||||
2019 | 2018 | |||||||
Options | 3,782,004 | - | ||||||
Warrants | 6,459,157 | 11,915,481 | ||||||
Convertible notes | 1,172,144 | 1,549,810 | ||||||
Convertible preferred stock | 11,687,590 | 6,504,570 | ||||||
Total | 23,100,895 | 19,969,861 |
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. |
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 | $ | 39,250 | $ | - | $ | - | $ | 39,250 | ||||||||
Accrued compensation - warrants | 55,089 | - | - | 55,089 | ||||||||||||
Accrued compensation - warrants - related party | 103,526 | - | - | 103,526 | ||||||||||||
Derivative liabilities | 380,100 | - | - | 380,100 | ||||||||||||
Balance - September 30, 2019 | $ | 577,965 | $ | - | $ | - | $ | 577,965 | ||||||||
Accrued compensation - common stock | $ | 37,500 | $ | - | $ | - | $ | 37,500 | ||||||||
Accrued compensation - warrants | 24,741 | - | - | 24,741 | ||||||||||||
Accrued compensation - warrants - related party | 55,083 | - | - | 55,083 | ||||||||||||
Derivative liabilities | 200,500 | - | - | 200,500 | ||||||||||||
Balance - December 31, 2018 | $ | 317,824 | $ | - | $ | - | $ | 317,824 |
Accrued | Derivative | |||||||||||
Compensation | Liabilities | Total | ||||||||||
Balance - December 31, 2018 | $ | 117,324 | $ | 200,500 | $ | 317,824 | ||||||
Issuance of warrants and conversion options | - | 15,600 | 15,600 | |||||||||
Extinguishment of conversion option | - | (1,000 | ) | (1,000 | ) | |||||||
Warrant modification | - | 283,500 | 283,500 | |||||||||
Accrued compensation - common stock | 1,750 | - | 1,750 | |||||||||
Accrued compensation - warrants | 30,604 | - | 30,604 | |||||||||
Accrued compensation - warrants - related party | 49,017 | - | 49,017 | |||||||||
Change in fair value | (830 | ) | (118,500 | ) | (119,330 | ) | ||||||
Balance - September 30, 2019 | $ | 197,865 | $ | 380,100 | $ | 577,965 |
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Risk-free interest rate | 1.55%-1.91 | % | 2.12%-2.91 | % | 1.17%-2.44 | % | 1.73%-2.91 | % | ||||||||
Expected term (years) | 0.11-5.00 | 0.08 - 4.41 | 0.02-5.00 | 0.25-4.76 | ||||||||||||
Expected volatility | 110 | % | 110 | % | 110 | % | 110 | % | ||||||||
Expected dividends | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % |
September 30, | December 31, | |||||||
2019 | 2018 | |||||||
(unaudited) | ||||||||
Cash | $ | 8,831 | $ | 18,934 | ||||
Working capital deficiency | $ | (5,914,548 | ) | $ | (4,920,171 | ) |
During the nine months ended September 30, 2019, we have not generated any revenues, had a net loss of approximately $3,899,000 and had used cash in operations of approximately $1,724,000. As of September 30, 2019, we had a working capital deficiency of approximately $5,915,000 and an accumulated deficit of approximately $20,570,000. Subsequent to September 30, 2019,the Company received proceeds of $500,000 from an advance payable and aggregate proceeds of $329,505 through the sale of 43,937 shares of Series A Convertible Preferred Stock at $7.50 per share.
31 | Certification of principal executive and principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32 | Certification of principal executive and principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
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 |
CELL SOURCE, INC. | |||
Dated: November 14, 2019 | By: | /s/ Itamar Shimrat | |
Name: Itamar Shimrat | |||
Title: Chief Executive Officer and Chief Financial Officer (Principal Executive, Financial and Accounting Officer) |