As filed with the Securities and Exchange Commission on August
8, 2014
Registration No. 333-________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933
CELL SOURCE, INC.
(Exact name of registrant as specified in
its charter)
Nevada
|
|
2836
|
|
32-0379665
|
(State or jurisdiction of
|
|
(Primary Standard Industrial
|
|
(I.R.S. Employer
|
incorporation or organization)
|
|
Classification Code Number)
|
|
Identification No.)
|
65 Yigal Alon Street
Tel Aviv Israel 67433
(Address of principal executive offices)
(zip code)
011 972 3 562-1755
(Registrant’s telephone number, including
area code)
(Former Name or Former Address, if Changed
Since Last Report)
Copies to:
Gregory Sichenzia, Esq.
David Manno, Esq.
Sichenzia Ross Friedman Ference LLP
61 Broadway
New York, New York 10006
Phone: (212) 930-9700
Fax: (212) 930-9725
Approximate date of commencement of proposed sale to the
public:
As soon as practicable after this Registration Statement is declared effective.
If any of the securities being registered on this Form are to
be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box.
¨
If this Form is filed to register additional securities for
an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same offering.
¨
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.
¨
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.
¨
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
x
Smaller
reporting company
CALCULATION OF REGISTRATION
FEE
Title of each class of
securities
to be registered
|
|
Amount to be
Registered (1)
|
|
|
Proposed Maximum
Offering Price Per
Security
|
|
|
Proposed Maximum
Aggregate Offering
Price
|
|
|
Amount of
Registration Fee
|
|
Common Stock, $0.001 par value per share
|
|
|
9,618,648
|
|
|
$
|
1.20
|
(2)
|
|
$
|
11,542,377.60
|
|
|
$
|
1,486.66
|
|
(1) Securities being registered hereunder include (a) 4,859,324
shares of common stock; (b) 4,759,324 shares of common stock issuable upon exercise of warrants; and (c) pursuant to Rule 416,
such indeterminate number of additional shares of common stock as may be issued after the date hereof as a result of stock splits,
stock dividends or similar transactions.
(2) Estimated solely for purposes of calculating the registration
fee pursuant to Rule 457(c) under the Securities Act of 1933, as amended, using the average of the high and low prices as reported
on August 7, 2014
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION
STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT
WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE
COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(A), MAY DETERMINE.
The
information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it
is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
PRELIMINARY PROSPECTUS, SUBJECT
TO COMPLETION, DATED August 8, 2014
CELL SOURCE, INC.
9,618,648 SHARES OF COMMON STOCK
This
prospectus relates to the sale of up to 9,618,648 shares of common stock of Cell Source, Inc. by the Selling Stockholders, including
4,859,324 outstanding shares and 4,759,324 shares issuable upon the exercise of outstanding warrants.
There
are no underwriting arrangements to sell the shares of common stock that are being registered hereunder. The prices at which
the selling stockholders may sell shares will be determined by the prevailing market price for the shares or in privately negotiated
transactions. We will not receive any proceeds from the sale of these shares by the selling stockholders. All expenses of registration
incurred in connection with this offering are being borne by us, but all selling and other expenses incurred by the selling stockholders
will be borne by the selling stockholders.
The
Company’s common stock is quoted under the symbol “CLCS" on the OTCQB. There has been no active trading of
our Company’s common stock. On August 7, 2014, the last reported sale price of our Common Stock as reported on the OTCQB
was $1.20 per share.
Investing
in our common stock is highly speculative and involves a high degree of risk. You should carefully consider the risks and
uncertainties in the section entitled “Risk Factors” beginning on page 7 of this prospectus before making a
decision to purchase our stock.
We may amend or supplement this prospectus
from time to time by filing amendments or supplements as required. You should read the entire prospectus and any amendments or
supplements carefully before you make your investment decision.
Neither the Securities and Exchange
Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is , 2014.
CELL SOURCE, INC.
TABLE OF CONTENTS
No person is authorized
in connection with this prospectus to give any information or to make any representations about us, the Selling Stockholders, the
securities or any matter discussed in this prospectus, other than the information and representations contained in this prospectus.
If any other information or representation is given or made, such information or representation may not be relied upon as having
been authorized by us or any Selling Stockholder. This prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy the securities in any circumstances under which the offer or solicitation is unlawful. Neither the delivery of this
prospectus nor any distribution of securities in accordance with this prospectus shall, under any circumstances, imply that there
has been no change in our affairs since the date of this prospectus. The prospectus will be updated and updated prospectuses made
available for delivery to the extent required by the federal securities laws.
Prospectus
Summary
This
summary highlights information contained elsewhere in this prospectus. It does not contain all of the information that you should
consider before investing in our securities. You should read the entire prospectus carefully, including the section entitled “Risk
Factors” and our consolidated financial statements and the related notes. Some of the statements contained in this prospectus,
including statements under “Prospectus Summary” and “Risk Factors” as well as those noted in the documents
incorporated herein by reference, are forward-looking statements and may involve a number of risks and uncertainties. We note
that our actual results and future events may differ significantly based upon a number of factors. The reader should not put undue
reliance on the forward-looking statements in this document, which speak only as of the date on the cover of this prospectus.
About Us
Cell
Source, Inc. (the "Company") is a Nevada corporation formed on June 6, 2012 under the name Ticket to See, Inc. ("TTSI").
Prior to the Share Exchange (as defined below), we did not have any significant assets or operations.
Cell
Source, Inc. is the parent company of Cell Source Ltd. ("Cell Source Israel"). Cell Source Israel was founded in Israel
in 2011 in order to commercialize a suite of inventions relating to certain cancer treatments. Our target indications include treatment
of lymphoma, multiple myeloma and BCLL (which is a common form of leukemia), facilitating transplantation acceptance (initially
bone marrow transplantation and subsequently organ transplantation) and ultimately treating a variety of non-malignant diseases.
Our lead prospective product is our patented Veto-Cell immune system management technology, which is an immune tolerance biotechnology
that enables the selective blocking of immune responses. Our Veto-Cell immune system management technology is based on technologies
patented, owned, and licensed to us by Research and Development Company Limited, an Israeli corporation ("Yeda"),
The
Company's corporate headquarters is located at 65 Yigal Alon Street, 23rd Floor, Tel Aviv 67433, Israel, and the telephone number
at such address is (972) 3 562-1755. The Company’s U.S. contact information is: 57 W. 57th St., Suite 400 New York, NY 10019
and the telephone number at such address is (646) 416-7896.
References
to “we,” “us,” “our” and similar words refer to the Company and its subsidiaries after giving
effect to the Share Exchange. References to “TTSI” refer to the Company and its business prior to the Share Exchange.
Recent Developments
Share Increase
On May 7, 2014, the
Board of Directors and the majority stockholder of TTSI adopted resolutions approving an amendment (the "Amendment")
of the Company's Articles of Incorporation to increase the number of authorized shares. Prior to the Amendment, the authorized
shares of the Company consisted of 75,000,000 shares of common stock, $0.001 par value. The Amendment was filed with the Secretary
of State of the State of Nevada on May 20, 2014 and increased the number of shares of common stock that the Company is authorized
to issue from 75,000,000 shares to 200,000,000 shares. The Company also authorized 10,000,000 shares of preferred stock, par value
$0.001, for designation in one or more series, with such designations, preferences and relative, participating, optional, or other
special rights and qualifications, limitations, or restrictions thereof, as may, from time to time, be adopted by the Company's
Board of Directors.
Name Change
On June 23, 2014, the
majority stockholder of TTSI adopted resolutions approving an amendment of the Company's Articles of Incorporation to change the
name of the corporation from Ticket to See, Inc. to Cell Source, Inc. The Amendment was filed with the Secretary of State of the
State of Nevada on June 23, 2014 and changed the name of the Corporation from Ticket to See, Inc. to Cell Source, Inc., effective
June 26, 2014. In connection with the name change, the trading symbol of the Company’s common stock was changed from TTSE
to CLCS.
Share Exchange
On June 30, 2014 (the
“Closing Date”), TTSI entered into and closed a Share Exchange Agreement (the “Share Exchange Agreement”)
with Cell Source Israel and 100% of the shareholders of Cell Source Israel (the “CSL Shareholders”) whereby Cell Source
Israel became the wholly-owned subsidiary of TTSI and TTSI changed its name to Cell Source, Inc. (the "Share Exchange"),
and whereby certain CSL Shareholders, holding 18,245,923 of the outstanding shares of Cell Source Israel, transferred to the Company
an aggregate of 18,245,923 shares of Cell Source Israel’s ordinary shares, each of nominal value of NIS 0.01 (“CSL
Ordinary Shares”) in exchange for an aggregate of 18,245,923 newly issued shares of the Company's Common Stock, par value
$0.001 per share (the “Company Common Stock” or the "Common Stock"). The aggregate of 18,245,923 shares of
newly issued Company Common Stock represents 78.5% of the outstanding shares of Company Common Stock following the Closing Date.
In addition, outstanding five (5) year warrants to acquire 4,859,324 CSL Ordinary Shares at an exercise price of $0.75 per share
(the "CSL Warrants") were exchanged for newly issued warrants to purchase shares of Company Common Stock (the “Company
Warrants”), which Company Warrants contain substantially similar terms as the CSL Warrants. In addition, outstanding warrants
to acquire 2,043,835 CSL Ordinary Shares held by Dr. Reisner and Yeda were exchanged for warrants to purchase shares of Company
Common Stock (the “Researcher Company Warrants”), which Researcher Company Warrants contain substantially similar terms
as their warrants to acquire CSL Ordinary Shares. The aggregate of 6,903,159 Company Warrants and Researcher Company Warrants represents
77.5% of the outstanding warrants to purchase Common Stock of the Company following the Closing Date.
Cell Source Israel's Private Placement
Beginning in November
2013, Cell Source Israel collected and entered into a series of subscription agreements (the “Subscription Agreement”)
with certain accredited investors (the “Investors”) in a private placement offering (the “Private Placement”).
Cell Source Israel held closings of the Private Placement between December 9, 2013 through April 7, 2014, pursuant to which Cell
Source Israel sold an aggregate of 4,759,324 Units (the "Units"), at a purchase price of $0.75 per Unit, for gross proceeds
of $3,569,475. Each Unit consists of one (1) share of CSL Ordinary Shares and one (1) CSL Warrant. Each CSL Warrant entitled the
holder to purchase one (1) share of CSL Ordinary Shares for a five (5) year period at an exercise price of $0.75 per share. In
connection with the Private Placement, Cell Source Israel relied upon the exemption from securities registration provided by Section
4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”) and Rule 506 as promulgated under the Securities
Act for transactions not involving a public offering.
Under the Subscription
Agreement, the Investors were granted the following rights for a period of five (5) years commencing on the closing of the
Private Offering: (i) in the event any shares of CSL Ordinary Shares or securities convertible, exchangeable or exercisable
for CSL Ordinary Shares are issued at a price less than $0.75 per share (“Adjustment Event”), subject to certain
adjustments, then additional CSL Ordinary Shares, or equivalents, will be issued to the Investors such that the aggregate
holdings of the Investors is equal to the aggregate holding had such Investors initially purchased at the applicable lower
price by which securities were issued in the Adjustment Event (except that certain issuances set forth in the Subscription
Agreement would not be an Adjustment Event); and (ii) upon any financing by Cell Source whereby CSL Ordinary Shares or
securities convertible into CSL Ordinary Shares are issued or sold (a “Subsequent Financing”), Investors have the
right to participate in such Subsequent Financing (subject to customary exemptions). The Investors were also granted
the right to elect up to two (2) independent board members. On May 29, 2014, the majority of the Investors granted certain
groups of shareholders the right to elect, subject to the closing of the Share Exchange Agreement, Yoram Drucker,
Itamar Shimrat, David Zolty, Ben Friedman and Dennis Brown to the Board of Directors of the Company. Furthermore, pursuant to
the Subscription Agreement, in the event that the Registration Statement is declared effective, the Company is obligated to
issue to certain founders of Cell Source Israel (Isaac Braun, Saar Dickman, Itamar Shimrat and Yoram Drucker) warrants to
purchase an aggregate of 3,000,000 shares of Company Common Stock at an exercise price of $0.75 per share,
subject
to the same adjustments and terms as the Company Warrants.
In
connection with the Private Placement, Cell Source Israel also entered into a Registration Rights Agreement (the
“Registration Rights Agreement”) with the Investors, pursuant to which Cell Source Israel agreed to file a
registration statement (the “Registration Statement”), registering for resale (i) all CSL Ordinary Shares, or
securities into which they were exchanged, that were included in the Units; and (ii) all CSL Ordinary Shares, or equivalent
securities, issuable upon exercise of the Investor Warrants or upon exercise of warrants into which the Investor Warrants
were exchanged.
As a result of the
Share Exchange, the Company assumed the obligations of Cell Source Israel under the Subscription Agreement and Registration Rights
Agreement.
In July and August
2014, the Company, Cell Source Israel and the majority of the Investors entered into Amendment No. 1 (the “RRA Amendment”)
to the Registration Rights Agreement in order to amend a definition in the Registration Rights Agreement to more accurately reflect
the understanding of the parties. Pursuant to the RRA Amendment, the definition relating to the deadline to file the Registration
Statement was corrected such that the Company became obligated to file the Registration Statement on or prior to the 60
th
day after the closing of the Share Exchange Agreement (the “Registration Filing Date”). The RRA Amendment
did not change any other term of the Registration Rights Agreement, including the obligation of the Company to get the Registration
Statement declared effective within 120 days of the Registration Filing Date.
The foregoing descriptions
of the Private Placement and related agreements and transactions do not purport to be complete and are qualified in their entirety
by reference to the complete text of such agreements.
About this Offering
This
prospectus includes 9,618,648 shares of Company Common Stock offered by the Selling Stockholders consisting of (i) 4,759,324 shares
of Common Stock issued pursuant to the Private Placement; (ii) 4,759,324 shares of Common Stock issuable upon exercise of Company
Warrants issued pursuant to the Private Placement; and (iii) 100,000 shares of Common Stock issued for legal services provided
to the Company.
Estimated Use of Proceeds
This
prospectus relates to shares of our Common Stock that may be offered and sold from time to time by the Selling Stockholders. We
will not receive any of the proceeds resulting from the sale of Common Stock by the Selling Stockholders.
However, we may
generate proceeds from the cash exercise of the Company Warrants. We intend to use those proceeds for general corporate purposes.
Financial Results
Our
planned principal operations are the development and commercialization of new cell therapy products focused on treatment
of blood cancers, certain non-malignant disorders and organ transplantations and regeneration. We are currently conducting
research and development activities in order to facilitate the transition of the patent technology we license from the
laboratory to clinical trials. We have a limited operating history. Therefore, there is limited historical financial
information upon which to base an evaluation of our performance. Our prospects must be considered in light of the
uncertainties, risks, expenses, and difficulties frequently encountered by companies in their early stages of operations.
Cell Source Israel has generated net losses since it began its operations in 2011, including $1,783,650 for year ended
December 31, 2013 and $820,242 for the three months ended March 31, 2014. We expect to incur substantial additional net
expenses over the next several years as our research, development, and commercial activities increase. The amount of future
losses and when, if ever, we will achieve profitability are uncertain. Our ability to generate revenue and achieve
profitability will depend on, among other things, successful completion of the preclinical and clinical development of our
product candidates; obtaining necessary regulatory approvals from the U.S. Food and Drug Administration (the
“FDA”) and international regulatory agencies; successful manufacturing, sales, and marketing arrangements; and
raising sufficient funds to finance our activities. If we are unsuccessful at some or all of these undertakings, our
business, prospects, and results of operations may be materially adversely affected.
Summary of the Shares Issued Pursuant to this Prospectus
The following is a summary of the shares being offered by the
Company:
Common Stock offered by the Selling Stockholders
|
|
9,618,648 shares of Common Stock of which 4,759,324 shares are issuable
upon exercise of outstanding warrants.
|
Common Stock outstanding prior to the offering
|
|
23,345,923 (1)
|
|
|
|
Common Stock to be outstanding after the offering
|
|
28,105,247, assuming the full exercise of the warrants to purchase 4,759,324 share of Common
Stock that are included in this prospectus.
|
Use of proceeds
|
|
We will not receive any proceeds from the sale of
shares in this offering by the Selling Stockholders. However, we may generate proceeds from the cash exercise of the Company
Warrants. We intend to use those proceeds for general corporate purposes.
|
(1) Based upon the total number of
issued and outstanding shares as of August 7, 2014.
RISK FACTORS
An investment in the Company’s
Common Stock involves a high degree of risk. You should carefully consider the risks described below as well as other information
provided to you in this prospectus, including information in the section of this document entitled “Information Regarding
Forward Looking Statements.” The risks and uncertainties described below are not the only ones facing us. Additional risks
and uncertainties not presently known to us or that we currently believe are immaterial may also impair our business operations.
If any of the following risks actually occur, our business, financial condition or results of operations could be materially adversely
affected, the value of our Common Stock could decline, and you may lose all or part of your investment.
Risks related to our Business
and our Industry
We have a limited
operating history and a history of operating losses, and expect to incur significant additional operating losses.
Our planned
principal operations are the development and commercialization of new cell therapy products focused on treatment of blood
cancers, certain non-malignant disorders and organ transplantations and regeneration. We are currently conducting research and
development activities in order to facilitate the transition of the patent technology we license from the laboratory to
clinical trials. We have a limited operating history. Therefore, there is limited historical financial information upon which
to base an evaluation of our performance. Our prospects must be considered in light of the uncertainties, risks, expenses,
and difficulties frequently encountered by companies in their early stages of operations. We have generated net losses since
we began operations, including $1,783,650 for year ended December 31, 2013 and $820,242 for the three months ended March 31,
2014. We expect to incur substantial additional net expenses over the next several years as our research, development, and
commercial activities increase. The amount of future losses and when, if ever, we will achieve profitability are uncertain.
Our ability to generate revenue and achieve profitability will depend on, among other things, successful completion of the
preclinical and clinical development of our product candidates; obtaining necessary regulatory approvals from the U.S. Food
and Drug Administration (the “FDA”) and international regulatory agencies; successful manufacturing, sales, and
marketing arrangements; and raising sufficient funds to finance our activities. If we are unsuccessful at some or all of
these undertakings, our business, prospects, and results of operations may be materially adversely affected.
We may need to
secure additional financing.
We anticipate that
we will incur operating losses for the foreseeable future. We may require additional funds for our anticipated operations and if
we are not successful in securing additional financing, we may be required to delay significantly, reduce the scope of or eliminate
one or more of our research or development programs, downsize our general and administrative infrastructure, or seek alternative
measures to avoid insolvency, including arrangements with collaborative partners or others that may require us to relinquish rights
to certain of our technologies, product candidates or products.
Our auditors
have issued a “going concern” audit opinion.
Our independent auditors
have indicated, in their report on our December 31, 2013 financial statements, that there is substantial doubt about our ability
to continue as a going concern. A “going concern” opinion indicates that the financial statements have been prepared
assuming we will continue as a going concern and do not include any adjustments to reflect the possible future effects on the recoverability
and classification of assets, or the amounts and classification of liabilities that may result if we do not continue as a going
concern. Therefore, you should not rely on our balance sheet as an indication of the amount of proceeds that would be available
to satisfy claims of creditors, and potentially be available for distribution to shareholders, in the event of liquidation.
We are
an early-stage company with an unproven business strategy and may never achieve commercialization of our candidate products or
profitability.
We are at an early
stage of development and commercialization of our technologies and product candidates. We have not yet begun to market any products
and, accordingly, have not begun to generate revenues from the commercialization of our products. Our products will require significant
additional clinical testing and investment prior to commercialization. A commitment of substantial resources by ourselves and,
potentially, our partners to conduct time-consuming research and clinical trials will be required if we are to complete the development
of our product candidates. There can be no assurance that any of our product candidates will meet applicable regulatory standards,
obtain required regulatory approvals, be capable of being produced in commercial quantities at reasonable costs or be successfully
marketed. Most of our product candidates are not expected to be commercially available for several years, if at all.
We are dependent on our collaborative
partners and service providers the loss of which would hurt our business.
Our strategy is to
enter into various arrangements with corporate and academic collaborators, licensors, licensees, service providers and others for
the research, development, clinical testing and commercialization of our products. We intend to or have entered into agreements
with academic, medical and commercial organizations to research, develop and test our products. In addition, we intend to enter
into corporate partnerships to commercialize the Company’s core products. There can be no assurance that such collaborations
can be established on favorable terms, if at all.
Should any collaborative
partner or service provider fail to appropriately research, develop, test or successfully commercialize any product to which the
Company has rights, our business may be adversely affected. Failure of a collaborative partner or service provider to successfully
conduct or complete their activities or to remain a viable collaborative partner or commercialize enterprise for any particular
program could delay or halt the development or commercialization of any products arising out of such program. While management
believes that collaborative partners and service providers will have sufficient economic motivation to continue their activities,
there can be no assurance that any of these collaborations or provisions of required services will be continued or result in successfully
commercialized products.
Notably, we
maintain an exclusive worldwide license to certain intellectual property owned by Yeda pursuant to the Yeda License Agreement,
as further discussed in the Intellectual Property section hereinafter. If we should default under the License Agreement, then our
rights to Yeda’s intellectual property would extinguish, and we would lose all rights to operate the licenses. In such an
event, we would effectively cease to operate unless we re-obtained licensing with Yeda.
In addition, there
can be no assurance that the collaborative research or commercialization partners will not pursue alternative technologies or develop
alternative products either on their own or in collaboration with others, including our competitors, as a means for developing
treatments for the diseases or conditions targeted by our programs.
Our ability
and our collaborators' ability to sell therapeutic products will depend to a large extent upon reimbursement from health care insurance
companies.
Our success
may depend, in part, on the extent to which reimbursement for the costs of therapeutic products and related treatments will be
available from third-party payers such as government health administration authorities, private health insurers, managed care programs,
and other organizations. Over the past decade, the cost of health care has risen significantly, and there have been numerous proposals
by legislators, regulators, and third-party health care payers to curb these costs. Some of these proposals have involved limitations
on the amount of reimbursement for certain products. Similar federal or state health care legislation may be adopted in the future
and any products that we or our collaborators seek to commercialize may not be considered cost-effective. Adequate third-party
insurance coverage may not be available for us or our collaborative partners to establish and maintain price levels that are sufficient
for realization of an appropriate return on investment in product development.
We are dependent on obtaining certain
patents and protecting our proprietary rights.
Our success will depend,
in part, on our ability to obtain patents, maintain trade secret protection and operate without infringing on the proprietary rights
of third parties or having third parties circumvent our rights. We have filed and are actively pursuing patent applications for
our products. The patent positions of biotechnology, biopharmaceutical and pharmaceutical companies can be highly uncertain and
involve complex legal and factual questions. Thus, there can be no assurance that any of our patent applications will result in
the issuance of patents, that we will develop additional proprietary products that are patentable, that any patents issued to us
or those that already have been issued will provide us with any competitive advantages or will not be challenged by any third parties,
that the patents of others will not impede our ability to do business or that third parties will not be able to circumvent our
patents. Furthermore, there can be no assurance that others will not independently develop similar products, duplicate any of our
products not under patent protection, or, if patents are issued to us, design around the patented products we developed or will
develop.
We may be required
to obtain licenses from third parties to avoid infringing patents or other proprietary rights. No assurance can be given that any
licenses required under any such patents or proprietary rights would be made available, if at all, on terms we find acceptable.
If we do not obtain such licenses, we could encounter delays in the introduction of products, or could find that the development,
manufacture or sale of products requiring such licenses could be prohibited.
A number of pharmaceutical,
biopharmaceutical and biotechnology companies and research and academic institutions have developed technologies, filed patent
applications or received patents on various technologies that may be related to or affect our business. Some of these technologies,
applications or patents may conflict with our technologies or patent applications. Such conflict could limit the scope of the patents,
if any, that we may be able to obtain. Such conflict may also result in the denial of our patent applications. In addition, if
patents that cover our activities are issued to other companies, there can be no assurance that we would be able to obtain licenses
to these patents at a reasonable cost or be able to develop or obtain alternative technology. If we do not obtain such licenses,
we could encounter delays in the introduction of products, or could find that the development, manufacture or sale of products
requiring such licenses could be prohibited. In addition, we could incur substantial costs in defending ourselves in suits brought
against us on patents that our products might infringe or in filing suits against others to have such patents declared invalid.
Patent applications
in the U.S. are maintained in secrecy and not published if either: i) the application is a provisional application or, ii) the
application is filed and we request no publication, and certify that the invention disclosed “has not and will not”
be the subject of a published foreign application. Otherwise, U.S. applications or foreign counterparts, if any, publish 18 months
after the priority application has been filed. Since publication of discoveries in the scientific or patent literature often lag
behind actual discoveries, we cannot be certain that we or any licensor were the first creator of inventions covered by pending
patent applications or that we or such licensor was the first to file patent applications for such inventions. Moreover, we might
have to participate in interference proceedings declared by the U.S. Patent and Trademark Office to determine priority of invention,
which could result in substantial cost to us, even if the eventual outcome were favorable to us. There can be no assurance that
our patents, if issued, would be held valid or enforceable by a court or that a competitor’s technology or product would
be found to infringe such patents.
Much of our know-how
and technology may not be patentable. To protect our rights, we require employees, consultants, advisors and collaborators to enter
into confidentiality agreements. There can be no assurance, however, that these agreements will provide meaningful protection for
our trade secrets, know-how or other proprietary information in the event of any unauthorized use or disclosure. Further, our business
may be adversely affected by competitors who independently develop competing technologies, especially if we obtain no, or only
narrow, patent protection.
We are subject to various
government regulations.
The manufacture and
sale of human therapeutic and diagnostic products in the U.S., Canada and foreign jurisdictions are governed by a variety of statutes
and regulations. These laws require approval of manufacturing facilities, controlled research and testing of products and government
review and approval of a submission containing manufacturing, preclinical and clinical data in order to obtain marketing approval
based on establishing the safety and efficacy of the product for each use sought, including adherence to current Good Manufacturing
Practice (or cGMP) during production and storage, and control of marketing activities, including advertising and labeling.
The products we are
currently developing will require significant development, preclinical and clinical testing and investment of substantial funds
prior to their commercialization. The process of obtaining required approvals can be costly and time-consuming, and there can be
no assurance that future products will be successfully developed and will prove to be safe and effective in clinical trials or
receive applicable regulatory approvals. Markets other than the U.S. and Canada have similar restrictions. Potential investors
and shareholders should be aware of the risks, problems, delays, expenses and difficulties which we may encounter in view of the
extensive regulatory environment which controls our business.
We may become
subject to increased government regulation.
Increased government
regulation could: (i) reduce our revenues; (ii) increase our operating expenses; and (iii) expose us to significant liabilities.
We cannot be sure what effect any future material noncompliance by us with any future laws and regulations or any material changes
in current laws and regulations could have on our business, operating results and financial condition.
If
we are unable to keep up with rapid technological changes in our field or compete effectively, we will be unable to operate profitably.
We are engaged in a
rapidly changing field. Other products and therapies that will compete directly with the products that we are seeking to develop
and market currently exist or are being developed. Competition from fully integrated pharmaceutical companies and more established
biotechnology companies is intense and is expected to increase. Most of these companies have significantly greater financial resources
and expertise in discovery and development, manufacturing, preclinical and clinical testing, obtaining regulatory approvals and
marketing than us. Smaller companies may also prove to be significant competitors, particularly through collaborative arrangements
with large pharmaceutical and established biopharmaceutical or biotechnology companies. Many of these competitors have significant
products that have been approved or are in development and operate large, well-funded discovery and development programs. Academic
institutions, governmental agencies and other public and private research organizations also conduct research, seek patent protection
and establish collaborative arrangements for therapeutic products and clinical development and marketing. These companies and institutions
compete with us in recruiting and retaining highly qualified scientific and management personnel. In addition to the above factors,
we will face competition based on product efficacy and safety, the timing and scope of regulatory approvals, availability of supply,
marketing and sales capability, reimbursement coverage, price and patent position. There is no assurance that our competitors will
not develop more effective or more affordable products, or achieve earlier patent protection or product commercialization, than
our own.
Other companies may
succeed in developing products earlier than ourselves, obtaining Health Canada, European Medicines Agency (the “EMEA”)
and FDA approvals for such products more rapidly than we will, or in developing products that are more effective than products
we propose to develop. While we will seek to expand our technological capabilities in order to remain competitive, there can be
no assurance that research and development by others will not render our technology or products obsolete or non-competitive or
result in treatments or cures superior to any therapy we develop, or that any therapy we develop will be preferred to any existing
or newly developed technologies.
Clinical trials
for our product candidates are expensive and time consuming, and their outcome is uncertain.
The process of obtaining
and maintaining regulatory approvals for new therapeutic products is expensive, lengthy and uncertain. Costs and timing of clinical
trials may vary significantly over the life of a project owing to any or all of the following non-exclusive reasons:
|
•
|
the duration of the clinical trial;
|
|
•
|
the number of sites included in the trials;
|
|
•
|
the countries in which the trial is conducted;
|
|
•
|
the length of time required and ability to enroll eligible patients;
|
|
•
|
the number of patients that participate in the trials;
|
|
•
|
the number of doses that patients receive;
|
|
•
|
the drop-out or discontinuation rates of patients;
|
|
•
|
per patient trial costs;
|
|
•
|
third party contractors failing to comply with regulatory requirements or meet their contractual
obligations to us in a timely manner;
|
|
•
|
our final product candidates having different properties in humans than in laboratory testing;
|
|
•
|
the need to supend or terminate our clinical trials;
|
|
•
|
insufficient or inadequate supply of quality of necessary materials to conduct our trials;
|
|
•
|
potential additional safety monitoring, or other conditions required by FDA or comparable foreign
regulatory authorities regarding the scope or design of our clinical trials, or other studies requested by regulatory agencies;
|
|
•
|
problems engaging institutional review boards (“IRB”) to oversee trials or in obtaining
and maintaining IRB approval of studies;
|
|
•
|
the duration of patient follow-up;
|
|
•
|
the efficacy and safety profile of a product candidate;
|
|
•
|
the costs and timing of obtaining regulatory approvals; and
|
|
•
|
the costs involved in enforcing or defending patent claims or other intellectual property rights.
|
Late stage clinical
trials are especially expensive, typically requiring tens of millions of dollars, and take years to reach their outcomes. Such
outcomes often fail to reproduce the results of earlier trials. It is often necessary to conduct multiple late stage trials, including
multiple Phase III trials, in order to obtain sufficient results to support product approval, which further increases the expense.
Sometimes trials are further complicated by changes in requirements while the trials are under way (for example, when the standard
of care changes for the disease that is being studied in the trial). Accordingly, any of our current or future product candidates
could take a significantly longer time to gain regulatory approval than we expect, or may never gain approval, either of which
could delay or stop the commercialization of our product candidates.
We may be required
to suspend or discontinue clinical trials due to unexpected side effects or other safety risks that could preclude approval of
our product candidates.
Our clinical trials
may be suspended at any time for a number of reasons. For example, we may voluntarily suspend or terminate our clinical trials
if at any time we believe that they present an unacceptable risk to the clinical trial patients. In addition, the FDA or other
regulatory agencies may order the temporary or permanent discontinuation of our clinical trials at any time if they believe that
the clinical trials are not being conducted in accordance with applicable regulatory requirements or that they present an unacceptable
safety risk to the clinical trial patients.
Administering any product
candidate to humans may produce undesirable side effects. These side effects could interrupt, delay or halt clinical trials of
our product candidates and could result in the FDA or other regulatory authorities denying further development or approval of our
product candidates for any or all targeted indications. Ultimately, some or all of our product candidates may prove to be unsafe
for human use. Moreover, we could be subject to significant liability if any volunteer or patient suffers, or appears to suffer,
adverse health effects as a result of participating in our clinical trials.
We may not receive
regulatory approvals for our product candidates or there may be a delay in obtaining such approvals.
Our products and our
ongoing development activities are subject to regulation by regulatory authorities in the countries in which we or our collaborators
and distributors wish to test, manufacture or market our products. For instance, the FDA will regulate the product in the U.S.
and equivalent authorities, such as the European Medicines Agency (“EMA”), will regulate in Europe. Regulatory approval
by these authorities will be subject to the evaluation of data relating to the quality, efficacy and safety of the product for
its proposed use, and there can be no assurance that the regulatory authorities will find our data sufficient to support product
approval.
The time required to
obtain regulatory approval varies between countries. In the U.S., for products without “Fast Track” status, it can
take up to eighteen (18) months after submission of an application for product approval to receive the FDA’s decision. Even
with Fast Track status, FDA review and decision can take up to twelve (12) months.
Different regulators
may impose their own requirements and may refuse to grant, or may require additional data before granting, an approval, notwithstanding
that regulatory approval may have been granted by other regulators. Regulatory approval may be delayed, limited or denied for a
number of reasons, including insufficient clinical data, the product not meeting safety or efficacy requirements or any relevant
manufacturing processes or facilities not meeting applicable requirements as well as case load at the regulatory agency at the
time.
We may fail to
comply with regulatory requirements
.
Our success will be
dependent upon our ability, and our collaborative partners’ abilities, to maintain compliance with regulatory requirements,
including cGMP, and safety reporting obligations. The failure to comply with applicable regulatory requirements can result in,
among other things, fines, injunctions, civil penalties, total or partial suspension of regulatory approvals, refusal to approve
pending applications, recalls or seizures of products, operating and production restrictions and criminal prosecutions.
Regulatory approval
of our product candidates may be withdrawn at any time.
After regulatory approval
has been obtained for medicinal products, the product and the manufacturer are subject to continual review, including the review
of adverse experiences and clinical results that are reported after our products are made available to patients, and there can
be no assurance that such approval will not be withdrawn or restricted. Regulators may also subject approvals to restrictions or
conditions, or impose post-approval obligations on the holders of these approvals, and the regulatory status of such products may
be jeopardized if such obligations are not fulfilled. If post-approval studies are required, such studies may involve significant
time and expense.
The manufacturer and
manufacturing facilities we use to make any of our products will also be subject to periodic review and inspection by the FDA or
EMA, as applicable. The discovery of any new or previously unknown problems with the product, manufacturer or facility may result
in restrictions on the product or manufacturer or facility, including withdrawal of the product from the market. We will continue
to be subject to the FDA or EMA requirements, as applicable, governing the labeling, packaging, storage, advertising, promotion,
recordkeeping, and submission of safety and other post-market information for all of our product candidates, even those that the
FDA or EMA, as applicable, had approved. If we fail to comply with applicable continuing regulatory requirements, we may be subject
to fines, suspension or withdrawal of regulatory approval, product recalls and seizures, operating restrictions and other adverse
consequences.
There may not
be a viable market for our products.
We believe that there
will be many different applications for our products. We also believe that the anticipated market for our products will continue
to expand. These assumptions may prove to be incorrect for a variety of reasons, including competition from other products and
the degree of our products’ commercial viability.
We rely on key
personnel and, if we are unable to retain or motivate key personnel or hire qualified personnel, we may not be able to grow effectively.
We are dependent on
our Chief Executive Officer, Itamar Shimrat, our Executive Chairman, Yoram Drucker, and on scientific and drug development staff
and consultants, including Professor Yair Reisner, the loss of services of one or more of whom could materially adversely affect
us.
We currently do not
have full-time employees, but we retain the services of part-time staff on an independent contractor/consultant and contract-employment
basis. Our ability to manage growth effectively will require us to continue to implement and improve our management systems and
to recruit and train new employees. Although we have done so in the past and expect to do so in the future, there can be no assurance
that we will be able to successfully attract and retain skilled and experienced personnel.
We may be subject
to foreign exchange fluctuation.
We maintain our accounts
in both U.S. dollars and Israeli shekels. A portion of our expenditures are in foreign currencies, most notably in U.S. dollars,
and therefore we are subject to foreign currency fluctuations, which may, from time to time, impact our financial position and
results. We may enter into hedging arrangements under specific circumstances, typically through the use of forward or futures currency
contracts, to minimize the impact of increases in the value of the U.S. dollar. In order to minimize our exposure to foreign exchange
fluctuations we may hold sufficient U.S. dollars to cover our expected U.S. dollar expenditures.
We may be exposed
to potential product and clinical trials liability.
Our business exposes
us to potential product liability risks, which are inherent in the testing, manufacturing, marketing and sale of therapeutic products.
Human therapeutic products involve an inherent risk of product liability claims and associated adverse publicity. While we will
continue to take precautions we deem appropriate, there can be no assurance that we will be able to avoid significant product liability
exposure. We do not currently maintain liability insurance coverage as such insurance is expensive and difficult to obtain. We
plan to obtain liability insurance coverage, and when we do so it may not be available on acceptable terms, if at all. In regard
to liability insurance coverage for the European clinical trials, Yeda will maintain such insurance for the trials, which will
cover and extend to the Company as a sponsor. Should we ever conduct trials in our own name, we would obtain liability insurance
coverage at that time. The inability to obtain sufficient insurance coverage on reasonable terms or to otherwise protect against
potential product liability claims could prevent or inhibit the commercialization of our current or potential products. A product
liability claim brought against us in a clinical trial or a product withdrawal could have a material adverse effect upon us and
our financial condition.
Our directors
and officers may be exposed to liability
.
We do not currently
maintain directors and officers liability insurance, also known as “D&O Insurance.” However, we plan to obtain
D&O Insurance for our directors and officers at or around the period immediately following the closing of the Share Exchange
Agreement.
We may become subject to liabilities
related to risks inherent in working with hazardous materials.
Our discovery and development
processes involve the controlled use of hazardous and radioactive materials. We are subject to federal, state, provincial and local
laws and regulations governing the use, manufacture, storage, handling and disposal of such materials and certain waste products.
Although we believe that our safety procedures for handling and disposing of such materials comply with the standards prescribed
by such laws and regulations, the risk of accidental contamination or injury from these materials cannot be completely eliminated.
In the event of such an accident, we could be held liable for any damages that result and any such liability could exceed our resources.
We are not specifically insured with respect to this liability. Although we believe that we are in compliance in all material respects
with applicable environmental laws and regulations and currently do not expect to make material capital expenditures for environmental
control facilities in the near-term, there can be no assurance that we will not be required to incur significant costs to comply
with environmental laws and regulations in the future, or that our operations, business or assets will not be materially adversely
affected by current or future environmental laws or regulations.
We identified
a material weakness in our internal control over financial reporting and if the remediation procedures we have undertaken are unable
to successfully remediate the existing material weakness, then the accuracy and timing of our financial reporting may be adversely
affected.
In preparing our financial
statements as of and for the year ended December 31, 2013, we identified control deficiencies in the design and operation of our
internal control over financial reporting that together constituted a material weakness in our internal control over financial
reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting
such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected
on a timely basis. The material weaknesses identified were that we did not have adequate accounting systems and our accounting
staff was inadequate both in terms of the number of personnel and their expertise in U.S. GAAP and SEC rules and regulations. As
such, our controls over financial reporting were not designed or operating effectively. We believe we have remediated this material
weakness as of the date of this filing. However, sufficient time has not passed to allow us to test the effects of such remedies
on the efficacy of our controls over financial reporting.
The material weakness
in our internal control over financial reporting was attributable to inadequate accounting systems. In addition, our accounting
staff was inadequate both in terms of the number of personnel and their expertise in U.S. GAAP and SEC rules and regulations. In
response to this material weakness, we engaged the services of additional personnel with knowledge of U.S. GAAP and public company
financial reporting expertise to enhance our financial management and reporting infrastructure, and further develop and document
our accounting policies and financial reporting procedures.
Our independent
certified public accounting firm is not required to perform an evaluation of our internal control over financial reporting
in accordance with the provisions of the Sarbanes-Oxley Act by virtue of our status as an “emerging growth
company” as defined in the JOBS Act.
In light of the control deficiencies and the resulting material weakness that were identified as a result of the limited
procedures we did perform, it is possible that additional material weaknesses and significant control deficiencies may have
been identified if we and our independent registered public accounting firm performed an evaluation of our internal control
over financial reporting in accordance with the provisions of the Sarbanes-Oxley Act. However, for as long as we remain
an “emerging growth company” as defined in the JOBS Act, we intend to take advantage of the exemption permitting
us not to comply with the requirement that our independent registered public accounting firm provide an attestation on
the effectiveness of our internal control over financial reporting.
If we failed to remediate
the material weakness or if in the future we fail to meet the demands that will be placed upon us as a public company, we may be
unable to accurately report our financial results, or report them within the timeframes required by law or stock exchange regulations.
Failure to comply with Section 404 of the Sarbanes-Oxley Act could also potentially subject us to sanctions or investigations by
the SEC or other regulatory authorities.
Risks Related to Our Common Stock
There is not
an active liquid trading market for the Company’s Common Stock.
The Company voluntarily
reports under the Exchange Act and its Common Stock is eligible for quotation on the OTC Markets. However, there is no regular
active trading market in the Company’s Common Stock, and we cannot give an assurance that an active trading market will develop.
If an active market for the Company’s Common Stock develops, there is a significant risk that the Company’s stock price
may fluctuate dramatically in the future in response to any of the following factors, some of which are beyond our control:
|
•
|
variations in our quarterly operating results;
|
|
•
|
announcements that our revenue or income are below analysts’ expectations;
|
|
•
|
general economic slowdowns;
|
|
•
|
sales of large blocks of the Company’s Common Stock; and
|
|
•
|
announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships,
joint ventures or capital commitments.
|
Our Common Stock
is subject to the “penny stock” rules of the Securities and Exchange Commission, which may make it more difficult for
stockholders to sell our Common Stock.
The SEC has adopted
Rule 15g-9 which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security
that has a market price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock,
unless exempt, the rules require that a broker or dealer approve a person’s account for transactions in penny stocks, and
the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity
of the penny stock to be purchased.
In order to
approve a person’s account for transactions in penny stocks, the broker or dealer must obtain financial information and investment
experience objectives of the person, and make a reasonable determination that the transactions in penny stocks are suitable for
that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of
transactions in penny stocks.
The broker
or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to
the penny stock market, which, in highlight form sets forth the basis on which the broker or dealer made the suitability determination,
and that the broker or dealer received a signed, written agreement from the investor prior to the transaction.
Generally,
brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make
it more difficult for investors to dispose of the Company’s Common Stock if and when such shares are eligible for sale and
may cause a decline in the market value of its stock.
Disclosure
also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the
commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the
rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to
be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny
stock.
We may
not be able to attract the attention of brokerage firms because we became a public company by means of a reverse acquisition.
Because we
became public through a “reverse acquisition," securities analysts of brokerage firms may not provide coverage of us
since there is little incentive to brokerage firms to recommend the purchase of our Common Stock. No assurance can be given that
brokerage firms will want to conduct any secondary offerings on behalf of the Company in the future.
Applicable
regulatory requirements, including those contained in and issued under the Sarbanes-Oxley Act of 2002, may make it difficult for
the Company to retain or attract qualified officers and directors, which could adversely affect the management of its business
and its ability to obtain or retain listing of its Common Stock.
The Company
may be unable to attract and retain those qualified officers, directors and members of board committees required to provide for
effective management because of the rules and regulations that govern publicly held companies, including, but not limited to, certifications
by principal executive officers. The enactment of the Sarbanes-Oxley Act has resulted in the issuance of a series of related rules
and regulations and the strengthening of existing rules and regulations by the SEC, as well as the adoption of new and more stringent
rules by the stock exchanges. The perceived increased personal risk associated with these changes may deter qualified individuals
from accepting roles as directors and executive officers.
Further, some
of these changes heighten the requirements for board or committee membership, particularly with respect to an individual’s
independence from the corporation and level of experience in finance and accounting matters. The Company may have difficulty attracting
and retaining directors with the requisite qualifications. If the Company is unable to attract and retain qualified officers and
directors, the management of its business and its ability to obtain or retain listing of our shares of Common Stock on any stock
exchange (assuming the Company elects to seek and are successful in obtaining such listing) could be adversely affected.
If the
Company fails to maintain an effective system of internal controls, it may not be able to accurately report its financial results
or detect fraud. Consequently, investors could lose confidence in the Company’s financial reporting and this may decrease
the trading price of its stock.
The Company
must maintain effective internal controls to provide reliable financial reports and detect fraud. The Company has been assessing
its internal controls to identify areas that need improvement. It is in the process of implementing changes to internal controls,
but has not yet completed implementing these changes. Failure to implement these changes to the Company’s internal controls
or any others that it identifies as necessary to maintain an effective system of internal controls could harm its operating results
and cause investors to lose confidence in the Company’s reported financial information. Any such loss of confidence would
have a negative effect on the trading price of the Company’s stock.
Voting power of our shareholders
is highly concentrated by insiders.
Our officers and directors
and affiliates will on a pro forma basis beneficially own approximately 28.39% of our outstanding ordinary shares after the closing
of the Private Placement. Such concentrated control of the Company may adversely affect the value of our ordinary shares. If you
acquire our ordinary shares, you may have no effective voice in our management. Sales by our insiders or affiliates, along with
any other market transactions, could affect the value of our ordinary shares.
We do not intend to pay
dividends for the foreseeable future.
We have paid
no dividends on our Common Stock to date and it is not anticipated that any dividends will be paid to holders of our Common Stock
in the foreseeable future. While our future dividend policy will be based on the operating results and capital needs of the business,
it is currently anticipated that any earnings will be retained to finance our future expansion and for the implementation of our
business plan. As an investor, you should take note of the fact that a lack of a dividend can further affect the market value of
our stock, and could significantly affect the value of any investment in our Company.
Our articles
of incorporation allow for our board to create a new series of preferred stock without further approval by our stockholders, which
could adversely affect the rights of the holders of our Common Stock.
Our Board of
Directors has the authority to fix and determine the relative rights and preferences of preferred stock. Our Board of Directors
have the authority to issue up to 10,000,000 shares of our preferred stock terms of which may be determined by the Board without
further stockholder approval. As a result, our Board of Directors could authorize the issuance of a series of preferred stock that
would grant to holders the preferred right to our assets upon liquidation, the right to receive dividend payments before dividends
are distributed to the holders of Common Stock and the right to the redemption of the shares, together with a premium, prior to
the redemption of our Common Stock. In addition, our Board of Directors could authorize the issuance of a series of preferred stock
that has greater voting power than our Common Stock or that is convertible into our Common Stock, which could decrease the relative
voting power of our Common Stock or result in dilution to our existing stockholders. Although we have no present intention to issue
any additional shares of preferred stock or to create any additional series of preferred stock, we may issue such shares in the
future.
If our
registration statement becomes effective, there will be a significant number of shares of Common Stock eligible for sale, which
could depress the market price of such shares.
We have agreed
to file a registration statement with the SEC to register the shares of our Common Stock issued or issuable in connection with
the Private Placement. Following the effective date of such registration statement a large number of shares of Common Stock will
be available for sale in the public market, which could harm the market price of the stock.
You may
experience dilution of your ownership interests because of the future issuance of additional ordinary shares.
In the future,
we may issue additional authorized but previously unissued equity securities, resulting in the dilution of the ownership interests
of our shareholders. We may also issue additional shares of our securities that are convertible into or exercisable for ordinary
shares, as the case may be, in connection with hiring or retaining employees, future acquisitions, future sales of its securities
for capital raising purposes, or for other business purposes. The future issuance of any such additional shares may create downward
pressure on the value of our securities. There can be no assurance that we will not be required to issue additional shares, warrants
or other convertible securities in the future in conjunction with any capital raising efforts, including at a price (or exercise
prices) below the price at which our shares may be valued or are trading in a public market.
As an issuer
of “penny stock," the protection provided by the federal securities laws relating to forward looking statements does
not apply to us.
Although federal securities
laws provide a safe harbor for forward-looking statements made by a public company that files reports under the federal securities
laws, this safe harbor is not available to issuers of penny stocks. As a result, we will not have the benefit of this safe harbor
protection in the event of any legal action based upon a claim that the material provided by us contained a material misstatement
of fact or was misleading in any material respect because of our failure to include any statements necessary to make the statements
not misleading. Such an action could hurt our financial condition.
Our issuance
of Common Stock upon exercise of warrants or options may depress the price of our Common Stock.
As of the date of this
prospectus, we have 23,345,923 shares of Common Stock and warrants to purchase 8,903,160 shares of Common Stock. The issuance of
shares of Common Stock upon exercise of outstanding warrants or options could result in substantial dilution to our stockholders,
which may have a negative effect on the price of our Common Stock.
Compliance with
the reporting requirements of federal securities laws can be expensive.
As a public reporting
company in the United States, we are subject to the information and reporting requirements of the Exchange Act and other federal
securities laws, and the compliance obligations of the Sarbanes-Oxley Act. The costs of preparing and filing annual and quarterly
reports as well as other information with the SEC and furnishing audited reports to shareholders is significant.
FORWARD-LOOKING STATEMENTS
Statements contained
in this prospectus and the Form S-1 Registration Statement of which this prospectus is a part may be “forward-looking statements.”
Forward-looking statements include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies,
predictions or any other statements relating to our future activities or other future events or conditions. These statements are
based on current expectations, estimates and projections about our business based, in part, on assumptions made by management.
These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to
predict. Therefore, actual outcomes and results may, and are likely to, differ materially from what is expressed or forecasted
in the forward-looking statements due to numerous factors, including those described above and those risks discussed from time
to time in this prospectus, including the risks described under “Risk Factors” and “Management’s Discussion
and Analysis of Financial Condition and Results of Operation” in this prospectus and in other documents which we file with
the Securities and Exchange Commission. In addition, such statements could be affected by risks and uncertainties related to:
|
·
|
our ability to raise funds for general corporate purposes and operations, including our clinical trials;
|
|
·
|
the commercial feasibility and success of our technology;
|
|
·
|
our ability to recruit qualified management and technical personnel;
|
|
·
|
the success of our clinical trials;
|
|
·
|
our ability to obtain and maintain required regulatory approvals for our products; and
|
|
·
|
the other factors discussed in the “Risk Factors” section and elsewhere in this prospectus.
|
Any forward-looking
statements speak only as of the date on which they are made, and except as may be required under applicable securities laws, we
do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this
current report.
USE OF PROCEEDS
The
Selling Stockholders will receive all of the proceeds from the sale of the shares offered by them under this prospectus. We will
not receive any proceeds from the sale of the shares by the Selling Stockholders covered by this prospectus. However, we will generate
proceeds from any cash exercise of the warrants by the Selling Stockholders, if any. There can be no assurance that any of the
Selling Stockholders will exercise all or any of their warrants. We intend to use any proceeds received for general corporate purposes.
MARKET FOR
OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Market Information
The Company’s
common stock is quoted under the symbol “CLCS” on the OTCQB. There has been no active trading of our Company’s
common stock.
Transfer Agent
Our transfer agent
is Globex Transfer, LLC, 780 Deltona Blvd., Suite 202, Deltona, FL 32725.
Holders
As of August 7,
2014, there were approximately 100 holders of record of the Company’s common stock.
Outstanding
As of August 7,
2014: (i) 8,903,160 shares of common stock are subject to outstanding warrants to purchase, or securities convertible into,
common stock; (ii) 0 shares of common stock can be sold pursuant to Rule 144 under the Securities Act; and (iii) 0 shares of
common stock are being, or has been publicly proposed to be, publicly offered by the Company.
Dividends
The Company has never
declared or paid any cash dividends on its Common Stock. The Company currently intends to retain future earnings, if any, to finance
the expansion of its business. As a result, the Company does not anticipate paying any cash dividends in the foreseeable future.
Securities Authorized for Issuance
Under Equity Compensation Plans
As of the date of the filing of this prospectus,
the Company does not have any equity compensation plan.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATION
This Management Discussion
and Analysis (“MD&A”) contains “forward-looking statements," which represent our projections, estimates,
expectations or beliefs concerning among other things, financial items that relate to management’s future plans or objectives
or to our future economic and financial performance. In some cases, you can identify these statements by terminology such as “may,”
“should,” “plans,” “believe,” “will,” “anticipate,” “estimate,”
“expect,” “project” or “intend,” including their opposites or similar phrases or expressions.
You should be aware
that these statements are projections or estimates as to future events and are subject to a number of factors that may tend to
influence the accuracy of the statements. These forward-looking statements should not be regarded as a representation by the Company
or any other person that the events or plans of the Company will be achieved. You should not unduly rely on these forward-looking
statements, which speak only as of the date of this MD&A. Except as may be required under applicable securities laws, we undertake
no obligation to publicly revise any forward-looking statement to reflect circumstances or events after the date of this MD&A
or to reflect the occurrence of unanticipated events. You should, however, review the factors and risks we describe under “Risk
Factors” in this prospectus. Actual results may differ materially from any forward looking statement.
Overview
Our wholly-owned subsidiary,
Cell Source Israel was founded in 2011 as a privately held company located in Tel Aviv, Israel. Our business is based on over ten
(10) years of prominent research at the Weizmann Institute, the commercial arm of Yeda, from whom we license patented technology.
Our exclusive, world-wide license provides us with access to certain discoveries, inventions and other intellectual property generated
by Dr. Reisner, Head of the Immunology Department at the Weizmann Institute, together with others. Dr. Reisner leads a team at
the Weizmann Institute to continue the development of these technologies in order to facilitate the transition of those technologies
from the laboratory to clinical trials. We also collaborate with Dr. Herman Einsele and Dr. Franco Aversa, leading figures in bone
marrow transplantation for cancer treatment and research, both of whom plan to serve on our Scientific Advisory Board and will
oversee our initial clinical trials which, when started, will focus on addressing cancer through cell therapy accompanied by bone
marrow transplants.
Our lead prospective
product is our patented Veto-Cell immune system management technology, which is an immune tolerance biotechnology that enables
the selective blocking of immune responses. The Company’s target indications include: lymphoma, multiple myeloma and BCLL
(a form of leukemia treatment), facilitating transplantation acceptance (initially bone -marrow transplantation and subsequently
organ transplantation), and ultimately treating a variety of non-malignant diseases.
Results of Operations
Selected Statement of Operations Data
|
|
Three Months Ended
March 31
|
|
|
Year Ended
December 31
|
|
|
|
2014
$
|
|
|
2013
$
|
|
|
2013
$
|
|
|
2012
$
|
|
Research and development
|
|
|
(536,775
|
)
|
|
|
(179,246
|
)
|
|
|
(1,135,513
|
)
|
|
|
(1,219,515
|
)
|
General and administrative
|
|
|
(235,967
|
)
|
|
|
(48,753
|
)
|
|
|
(319,857
|
)
|
|
|
(447,264
|
)
|
Foreign exchange (gain) loss
|
|
|
(24,061
|
)
|
|
|
10,060
|
|
|
|
21,339
|
|
|
|
64,565
|
|
Interest expense
|
|
|
-
|
|
|
|
(34,533
|
)
|
|
|
(681,780
|
)
|
|
|
(8,633
|
)
|
Income (Loss) from operations
|
|
|
(820,242
|
)
|
|
|
(252,332
|
)
|
|
|
(1,783,650
|
)
|
|
|
(1,661,912
|
)
|
Weighted average number of shares outstanding
|
|
|
17,304,524
|
|
|
|
12,763,818
|
|
|
|
13,168,636
|
|
|
|
12,067,243
|
|
Loss per share
|
|
|
(.05
|
)
|
|
|
(0.02
|
)
|
|
|
(0.14
|
)
|
|
|
(0.14
|
)
|
Three Months Ended March 31, 2014 Compared to the Three
Months Ended March 31, 2013
|
|
Three Months Ended
March 31
|
|
|
|
|
|
|
|
|
|
2014
$
|
|
|
2013
$
|
|
|
Change
$
|
|
|
Change
%
|
|
Research and development
|
|
|
(536,775
|
)
|
|
|
(179,246
|
)
|
|
|
357,529
|
|
|
|
199
|
%
|
General and administrative
|
|
|
(235,967
|
)
|
|
|
(48,753
|
)
|
|
|
187,214
|
|
|
|
384
|
%
|
Foreign exchange (gain) loss
|
|
|
(24,061
|
)
|
|
|
10,060
|
|
|
|
34,121
|
|
|
|
-339
|
%
|
Interest expense
|
|
|
-
|
|
|
|
(34,533
|
)
|
|
|
(34,553
|
)
|
|
|
100
|
%
|
Net loss
|
|
|
(820,242
|
)
|
|
|
(252,332
|
)
|
|
|
567,910
|
|
|
|
225
|
%
|
Research and Development
Research and
development expenses increased to $536,775 for the three months ended March 31, 2014 from $179,246 for the three months ended
March 31, 2013, due to an increase in scientific consultation and legal expenses in connection with our Research and License
Agreement with Yeda during the three months ended March 31, 2014 as compared to the three months ended March 31, 2013.
Research and development
expenses decreased to $1,135,513 for the year ended December 31, 2013 from $1,219,515 for the year ended December 31, 2012, due
to the decrease in fees incurred for scientific consultation in 2013 as compared to 2012.
General and Administrative
General and administrative
expenses were $235,967 for the three months ended March 31, 2014 compared to $48,753 for the three months ended March 31, 2013.
The principal reasons for the increase were due to an increase in the payroll, travel and the bookkeeping expenses incurred in
the current period compared to the prior period.
Foreign Exchange (Gain) Loss
Our functional currency
is the Israeli Shekel, but we report our results in United States Dollars (“USD”). The translation gains and losses
are reported in other comprehensive loss/income. Foreign exchange gains and losses are the result of our incurring expenses in
USD and then translating those USD expenses into Shekels. We will continue to incur some expenses in USD and as a result will continue
to be exposed to foreign exchange gains and losses in part because it is expected that the Shekel will continue to be our functional
currency.
We recognized a foreign
exchange gain of $24,061 for the three months ended March 31, 2014 compared to a loss of $10,060 for the three months ended March
31, 2013. The change was due to changes in the exchange rate between the Israeli Shekel and the USD and to varying levels of USD
accounts payable.
Interest Expense
Interest expense for
the three months ended March 31, 2014 was $0 as compared to expense of $34,533 for the three months ended March 31, 2013.
The Year Ended December 31, 2013
Compared to the Year Ended December 31, 2012
The financial information
reported here in has been prepared in accordance with U.S. GAAP. Our functional currency is the Israeli Shekel, but we report our
results in USD. The following table presents the Company’s results of operations for the year ended December 31, 2013 compared
to the year ended December 31, 2012.
Selected Balance Sheet Data
|
|
December 31
($)
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
28,878
|
|
|
|
161,323
|
|
Working capital (deficiency)
|
|
|
(760,671
|
)
|
|
|
(183,193
|
)
|
Total Assets
|
|
|
92,215
|
|
|
|
197,155
|
|
Derivative liability
|
|
|
231,200
|
|
|
|
38,300
|
|
Total shareholders’ deficiency
|
|
|
(697,334
|
)
|
|
|
(147,361
|
)
|
Liquidity and Capital Resources
|
|
December 31
($)
|
|
|
Change
($)
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
Cash and cash equivalents
|
|
|
28,878
|
|
|
|
161,323
|
|
|
|
(132,445
|
)
|
Current assets
|
|
|
28,878
|
|
|
|
161,323
|
|
|
|
(132,445
|
)
|
Current liabilities
|
|
|
789,549
|
|
|
|
344,516
|
|
|
|
445,033
|
|
Working capital (deficiency)
|
|
|
(760,671
|
)
|
|
|
(183,193
|
)
|
|
|
(577,478
|
)
|
|
|
December 31
($)
|
|
|
Change
($)
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
Cash used in operating activities
|
|
|
(893,942
|
)
|
|
|
(1,535,208
|
)
|
|
|
641,266
|
|
Cash flows provided financing activities
|
|
|
761,497
|
|
|
|
1,110,000
|
|
|
|
(348,503
|
)
|
Comparison of Cash Flow
Operating Activities
Net cash used in operating
activities decreased to $893,942 for the year ended December 31, 2013 from $1,535,208 for the year ended December 31, 2012. The
principal uses of funds were for services supporting the development of the Company’s business plan and research and development
fees as well as the costs of the daily operations of the business.
Financing Activities
We received $551,497
in net proceeds from the issuance of 735,327 shares of common stock during the year ended December 31, 2013 compared to $810,000
in proceeds from the issuance of 2,250,000 shares of common stock during the year ended December 31, 2012. In addition we received
$210,000 and $300,000 during the years ended December 31, 2013 and 2012, respectively, from the issuance of convertible notes.
Operating Capital and Capital Expenditure Requirements
For the year ended
December 31, 2013, we reported a loss of $1,783,650 and an accumulated deficit of $3,941,011. As of year ended December 31, 2013,
the Company had cash and cash equivalents on hand of $28,878 and a working capital balance of $760,671. The Company does not have
the prospect of achieving revenues in the near future, and the Company will require additional funding to maintain its research
and development projects and for general operations. These circumstances lend substantial doubt as to the ability of the Company
to meet its obligations as they come due.
|
|
For the Year Ended
December 31
|
|
|
|
|
|
|
|
|
|
2013
$
|
|
|
2012
$
|
|
|
Change
$
|
|
|
Change
%
|
|
Research and Development
|
|
|
(1,135,513
|
)
|
|
|
(1,219,515
|
)
|
|
|
84,002
|
|
|
|
7
|
%
|
General and Administrative
|
|
|
(319,857
|
)
|
|
|
(447,264
|
)
|
|
|
127,407
|
|
|
|
28
|
%
|
Foreign Exchange (Gain) Loss
|
|
|
21,339
|
|
|
|
64,565
|
|
|
|
43,226
|
|
|
|
67
|
%
|
Interest Expense
|
|
|
(681,780
|
)
|
|
|
(8,633
|
)
|
|
|
(673,147
|
)
|
|
|
-7797
|
%
|
Net Loss
|
|
|
(1,783,650
|
)
|
|
|
(1,661,912
|
)
|
|
|
(121,738
|
)
|
|
|
-7
|
%
|
Research and Development
Research and development expenses decreased
to $1,135,513 for the year ended December 31, 2013 from $1,219,515 for year ended December 31, 2012.
Additionally, contracted
research and travel were lower during the year ended December 31, 2013 compared to the year ended December 31, 2012. Contracted
research costs were lower in the current period due to the initiation of the agreement with Yeda in the year ended December 31,
2012. Travel has decreased in the current period compared to the prior period as a result of cash shortages.
General and Administrative
General and administrative
expenses were $319,857 for year ended December 31, 2013 compared to $447,264 for the year ended December 31, 2012. The principal
reasons for the decrease were due to higher professional fees and personnel costs incurred in the prior period. The decrease in
professional fees related to costs incurred for the initiation of our first financial statement audit, legal fees related to the
updating of our corporate records and for business development fees. Personnel costs increased in the year ended December 31, 2013
compared to the year ended December 31, 2012 due to an increase in salaries paid in the current period compared to the prior period.
Foreign Exchange (Gain) Loss
Our functional currency
is the Israeli Shekel, but we report our results in USD. The translation gains and losses are reported in other comprehensive loss/income.
Foreign exchange gains and losses are the result of our incurring expenses in USD and then translating those USD expenses into
Shekels. We will continue to incur some expenses in USD and as a result will continue to be exposed to foreign exchange gains and
losses in part because it is expected that the Shekel will continue to be our functional currency.
We recognized a foreign
exchange loss of $21,339 for the year ended December 31, 2013 compared to a loss of $64,565 for the year ended December 31, 2012.
The change was due to changes in the exchange rate between the Israeli Shekel and the USD and to varying levels of USD accounts
payable.
Interest Expense
Interest expense for
the year ended December 31, 2013 was $681,780 as compared to $8,633 for the year ended December 31, 2012. The increase is primarily
attributable to an increase in the amortization of debt discount.
Liquidity
Our independent registered
public accountants, in their audit report accompanying our financial statements for the year ended December 31, 2013, expressed
substantial doubt about our ability to continue as a going concern due to our status as a development stage organization without
any revenues to fund development and operating expenses.
The Company has not
generated any revenues since its inception, has recurring net losses and a working capital deficit as of December 31, 2013 and
2012 of approximately $761,000 and $183,200, respectively, and used cash in operations of approximately $894,000 and $1,535,000
for the years ended December 31, 2013 and 2012, respectively. In addition, the Company has an accumulated deficit from inception
of approximately $3,941,000.
The ability of the
Company to continue its operations is dependent on management’s plans, which include the raising of capital through debt
and/or equity markets with some additional funding from other traditional financing sources, including term notes, until such time
that funds provided by operations are sufficient to fund working capital requirements. The Company may need to incur additional
liabilities with certain related parties to sustain the Company’s existence. If the Company were not to continue as a going
concern, it would likely not be able to realize on its assets at values comparable to the carrying value or the fair value estimates
reflected in the balances set out in the preparation of the financial statements.
There can be no assurances
that the Company will be successful in generating additional cash from equity or other sources to be used for operations. Should
the Company not be successful in obtaining the necessary financing to fund its operations, the Company would need to curtail certain
or all operational activities and/or contemplate the sale of its assets if necessary.
Off Balance Sheet Arrangements
We do not have any
off balance sheet arrangements.
Critical Accounting Policies
Our discussion and
analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires
us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and related disclosure
of contingent assets and liabilities. We review our estimates on an ongoing basis. We base our estimates on historical experience
and on various other factors that we believe to be reasonable under the circumstances. Actual results may differ from these estimates.
We believe the judgments and estimates required by the following accounting policies to be critical in the preparation of our consolidated
financial statements.
Significant Factors, Assumptions, and Methodologies Used
in Estimating Fair Value of Common Stock
We performed valuations
to estimate the fair value of our common stock at March 31, 2014, December 31, 2013 and December 31, 2012 (Valuation Dates). To
determine the value of our common stock at each Valuation Date, we considered the following three possible valuation methods: (1)
the income approach, (2) the market approach and (3) the cost approach to estimate our enterprise value.
The income approach
focuses on the income-producing capability of a business by estimating value based on the expectation of future cash flows that
a company will generate - such as cash earnings, cost savings, tax deductions, and the proceeds from disposition. These cash flows
are discounted to the present using a rate of return that incorporates the risk-free rate for the use of funds, the expected rate
of inflation, and risks associated with the particular investment. The selected discount rate is generally based on rates of return
available from alternative investments of similar type, quality and risk.
The market approach
valuation method measures the value of an asset or business through an analysis of recent sales or offerings of comparable investments
or assets. When applied to the valuation of equity interests, consideration is given to the financial condition and operating performance
of the entity being appraised relative to those of publicly traded entities operating in the same or similar lines of business,
potentially subject to corresponding economic, environmental and political factors and considered to be reasonable investment alternatives.
In addition to the
income approach and market approach valuation methods, we also considered the cost approach as a valuation method. This approach
measures the value of an asset by the cost to reconstruct or replace it with another of like utility.
The Company selected
a Market Approach to estimate the fair value of the Common shares as the Company sold shares of Common Stock to third parties in
2012 and 2013.
|
·
|
During the year ended December 31, 2012, the Company entered into an agreement with a group of
investors whereby the investors purchased for $810,000 of cash 2,250,000 shares of common stock, which at $0.36 per share represented
a fair value of the common stock.
|
|
·
|
During the year ended December 31, 2013, the Company entered into an agreement with a group of
investors whereby, the investors purchased 735,327 common units for cash proceeds of $551,497 at $0.75 per unit. Each unit consisted
of 1 share of common stock and 1 five-year warrant, which entitles the holder to purchase 1 share of common stock at an exercise
price of $0.75 per share.
|
|
·
|
During the three months ended March 31, 2014, the Company entered into an agreement with a group
of investors whereby the Investors purchased 2,996,995 common units for cash proceeds of $2,247,746. Each unit was sold for $0.75
and consisted of 1 share of common stock and 1 five-year warrant, which entitles the holder to purchase 1 share of common stock
at an exercise price of $0.75 per share.
|
Using an option pricing
method and the relative fair values, the Company derived the implied equity value for the Common Stock based on the sale of the
Units described above.
|
|
December 31, 2013
|
|
|
March 31, 2014
|
|
|
|
Common stock
equivalents
|
|
|
Fair Value
|
|
|
Allocated %
|
|
|
Common stock
equivalents
|
|
|
Fair Value
|
|
|
Allocated %
|
|
Common stock
|
|
|
735,327
|
|
|
$
|
551,497
|
|
|
|
54
|
%
|
|
|
2,996,995
|
|
|
$
|
2,247,746
|
|
|
|
54
|
%
|
Warrants
|
|
|
735,327
|
|
|
$
|
470,800
|
|
|
|
46
|
%
|
|
|
2,996,995
|
|
|
$
|
1,918,854
|
|
|
|
46
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Relative fair value of the common stock
|
|
|
|
|
|
|
|
|
|
$
|
0.40
|
|
|
Relative fair value of the common stock
|
|
|
|
|
|
|
$
|
0.40
|
|
There is inherent
uncertainty in our forecasts and projections, and if we had made different assumptions and estimates than those described previously,
the determined fair value of our common stock as of each of the Valuation Dates could have been materially different.
Derivative liability
We account for certain
warrants under the authoritative guidance on accounting for derivative financial instruments indexed to, and potentially settled
in, a company’s own stock, on the understanding that in compliance with applicable securities laws, the warrants require
the issuance of securities upon exercise and do not sufficiently preclude an implied right to net cash settlement. We classify
warrants in our balance sheet as a derivative liability which is fair valued at each reporting period subsequent to the initial
issuance. We use a probability-weighted Black-Scholes pricing model to value the warrants. Determining the appropriate fair-value
model and calculating the fair value of warrants requires considerable judgment. Any change in the estimates (specifically probabilities)
used may cause the value to be higher or lower than that reported. The estimated volatility of our common stock at the date of
issuance, and at each subsequent reporting period, is based on the historical volatility of similar life sciences companies. The
risk-free interest rate is based on rates published by the government for bonds with a maturity similar to the expected remaining
life of the warrants at the valuation date. The expected life of the warrants is assumed to be equivalent to their remaining contractual
term.
BUSINESS
Overview
TTSI Corporate History
Cell Source, Inc.,
f/k/a Ticket To See Inc., was incorporated in the State of Nevada on June 6, 2012 with a mission to make the buying and selling
of advance event tickets easier, more accessible, and cost-effective for clients (venues / artists / promoters) and consumers.
This was to be done by providing an online, print-your-own ticketing platform for ticketed events of all kinds, including special
events, attractions, and shows and exhibits.
Cell Source Israel Corporate
History
Prior to the Share
Exchange, Cell Source Israel was a privately held company located in Tel Aviv, Israel. Cell Source Israel was founded in 2011 in
order to commercialize a suite of inventions that were the result of over ten (10) years of research at the Weizmann Institute
of Science in Rehovot, Israel (“Weizmann Institute”). Pursuant to a Research and License Agreement by and between Cell
Source Israel and Yeda Research and Development Company Limited ("Yeda"), dated October 3, 2011, as amended on April
1, 2014 (the “Yeda License Agreement”), Yeda, the commercial arm of the Weizmann Institute, granted Cell Source Israel
an exclusive license to certain patents, discoveries, inventions, and other intellectual property generated (together with others)
by Yair Reisner, Ph.D. (“Dr. Reisner”), head of the Immunology Department at the Weizmann Institute.
Our Business
We are a cell therapy
company focused on effectively treating lymphoma and other blood cell cancers. Our technology seeks to address 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.
A number of severe medical conditions are characterized by
this need. These include:
|
·
|
Haematological malignancies (leukemias,
lymphomas, etc.). One of the most effective treatments for these conditions is bone marrow transplantation. However, this is a
risky and difficult procedure primarily because of potential conflicts between host and donor immune systems.
|
|
·
|
Non-malignant haematological conditions
(such as sickle cell anemia) which could also be largely treated by bone marrow transplantation if the procedure did not pose such
threatening conflicts between host and donor immune systems.
|
|
·
|
Organ failure and transplantation. A variety
of conditions can be treated by the transplantation of vital organs. However, transplantation is limited both by the problem of
rejection and an insufficient supply of available donor organs.
|
Discussion
Haematological Malignancies
Haematological malignancies
(blood cancers) comprise a variety of lymphomas and leukemias. A very important treatment protocol for these malignancies involves
the use of hematopoietic stem cell transplantation (“HSCT”). To the best of our knowledge, approximately 50,000 bone
marrow transplantations are performed annually worldwide (table below). Our technology will be immediately applicable to, at a
minimum, the 47% of worldwide bone marrow transplants that are allogeneic (using cells taken from another individual).
Source: Worldwide Network for Blood and
Marrow Transplantations
HSCT has a curative
effect when successful. However, it is very risky. HSCT involves destroying the patient’s native immune system with radiation
or chemotherapy (myeloablation) before the transplantation, and then suppressing immune response (immunosuppression) with drugs
to manage the conflicts between host and donor cells, often for the rest of the patient’s life. Approximately 50% of all
transplant patients die within two (2) years of transplantation due to either aggressive pre-transplant immune suppression or post-transplant
complications such as infections.
Myeloablation and immunosuppression
are dangerous and difficult to tolerate, especially in patients over age 50. Therefore HSCT has been largely off-limits to the
older patient population and has traditionally been used only when said older patient is clearly terminal.
This means that:
|
a)
|
Many blood cancer patients are not candidates for the primary treatment (HSCT) that represents
a potential cure;
|
|
b)
|
there is high mortality among those patients who are candidates for HSCT and do undergo the procedure;
and
|
|
c)
|
those patients who successfully undergo and survive HSCT take dangerous, expensive, and quality-of-life
reducing immunosuppression medications, typically for a prolonged period of time.
|
There is widespread
awareness of the need for improved immune-system management technologies for HSCT – both to improve outcomes of transplantations
that have already taken place and to make transplantation safe enough to become appropriate for older patients and those with earlier-stage
diseases.
We aspire to use Veto-Cell technology to dramatically improve the outcomes of the allogeneic transplantations already being performed, and thereby
to rapidly penetrate the current market. However, our target population greatly exceeds those patients who currently undergo HSCT,
as the firm’s tolerizing technology could potentially make allogeneic transplantation an option for a much larger proportion
of the diseased population. The following table shows the prevalence of the specific haematological malignancies on which we will
focus:
Initial Malignancy Indications
(note estimates for North America and
EU only (1))
|
|
Prevalence
(Number patients)
|
|
Annual Bone Marrow
Transplantations
|
Non-Hodgkins Lymphoma
|
|
823,000
|
|
8,700
|
Multiple Myeloma
|
|
134,000
|
|
13,500
|
Chronic Lymphocytic Leukemia
|
|
117,000
|
|
1,500
|
Total
|
|
1,074,000
|
|
23,700
|
(1) assumes European Union prevalence is approximately
same as US
Source: Medtrack, Centers for Disease Control,
Journal of Clinical Oncology
.
For the purposes of
this document, it is assumed that the immediate candidates for Cell Source-enabled HSCT will be the subset of cancer patients that
today receive transplantations as part of their cancer treatment (rightmost column in table above). We believe that these patients
will benefit from Veto-Cell adjunct therapy, as such therapy aspires to improve the success and reduce the risk and mortality of
a procedure that they are having anyway. With time, as Veto-Cell treatment becomes more widespread and data is accumulated, we
believe that the percentage of patients that will be referred for Veto-Cell enabled HSCT will increase significantly.
It is also important
to note that incidence of these diseases is increasing, with up to a 77 percent increase in the number of newly diagnosed hematologic
malignancies among the older population expected to occur over the next 20 years.
See
Mohamed L. Sorror et al.,
Long-term
Outcomes Among Older Patients Following Nonmyeloablative Conditioning and Allogeneic Hematopoietic Cell Transplantation for Advanced
Hematologic Malignancies
, J. Am. Med. Ass'n, Nov. 2, 2011, at 1874.
HSCT Market Trends
There are four important
market trends affecting the haematological malignancies market:
|
(1)
|
As noted above, increasing incidence of these disorders in the West, largely driven by the aging
population.
|
|
(2)
|
Improvement and proliferation of HSCT treatments.
|
|
(3)
|
A “virtuous circle” of lowered death rate due to better transplantations leading to
more aggressive focus on HSCT.
|
|
(4)
|
The growing use of “reduced intensity conditioning,” i.e., lower myoablative dosing,
which makes the procedure more survivable for older patients.
|
The trends are highlighted
on the above charts. The incidence (above left) of leukemias and other blood cancers has been rising. At the same time (above right)
death rate from these conditions has been falling. The improving death rate is largely due to the proliferation of better HSCT
techniques. (Source: Bell Potter Securities.)
These trends have led
to, and been driven by, the increasing number of transplantations as shown in the graphic below. Note that the most significant
growth since 2000 is in the area of allogeneic transplantations, including transplantations from unrelated donors (light-blue line).
However, despite the
above trends, the use of HSCT, especially allogeneic, remains generally limited to younger, healthier patients because of the risks
associated with the myeloablative treatments required to reduce the host immune response and Graft versus Host Disease (“GVHD”).
This means that the “gold-standard” of treatment is largely unavailable to the age cohort that makes up the majority
of sufferers of these diseases.
The Company aspires
to addresses this issue in a distinctive manner by significantly reducing the need for myeloablative treatment and avoiding the
risk of GVHD, thereby improving the outlook for allogeneic transplantations and enabling their use in a much larger population
set.
Relevant Non-Malignant Diseases
While Hematological
malignancies represent the Company's initial focus, the Company's selective immune response blocking technology may also be effective
in treating certain non-malignant blood and immune system disorders. This would represent an additional growth opportunity for
the Company.
The target non-malignant
diseases are widespread. The Company's first non-malignant disorder target is expected to be sickle cell anemia. This is a serious
and relatively common disease.
Sickle cell anemia
can be treated by HSCT which replaces the defective bone marrow cells. However, because of HSCT’s riskiness, the procedure
is currently used only in extreme cases. If successful in enabling safer HSCT, the Company will make this treatment available to
a broader set of sickle cell anemia sufferers. As the therapy would be introduced in the form of bone marrow transplantation, we
assume that only patients with relatively severe forms of the disease will initially be candidates. As such, only a minority of
sickle cell anemia patients will be treatment candidates.
A second target within
non-malignant disorders is support of organ transplantations (kidney, liver, etc.). Approximately 60,000 such procedures are conducted
in North America and the EU each year. As with bone marrow transplantations, organ transplantations require substantial immunosuppression
to prevent rejection. This ongoing treatment is dangerous, quality-of-life reducing, and costly. The Company's Veto-Cell technology
can potentially be used to selectively reduce immune response to the transplanted organ, thus reducing the need for aggressive
immunosuppression post transplantation.
Market Access and Channels
The market for transplantation
therapies is relatively concentrated. There are approximately 1,400 transplantation centers worldwide, with the vast majority of
them concentrated in the Americas (primarily North America) and Europe as indicated in the chart below.
A relatively small
subset of the above centers (often termed “Centers of Excellence”) tends to set the practice standards for the entire
transplantation community. Therefore, as discussed in the Strategy section, the Company plans to focus its initial penetration
strategy on a relatively small group of influential centers.
Reimbursement issues
for our therapies are expected to be relatively straightforward. Once clinical effectiveness and regulatory approval are established,
the value-proposition for payors and providers is expected to be clear and compelling. Issues connected with immunosuppression
and rejection constitute a major component of bone marrow transplantation costs, and significant improvement in this area is expected
to bring substantive cost-savings for payors.
Sector Focus
We are in the general
space of cell therapies. This is an emerging field, described by industry analysts as having “Blockbuster potential for regenerative
treatments in indications with high level of unmet need." (Datamonitor.)
Within the cell therapy
field, our initial focus is on allogeneic therapies (treatments using donor derived—as opposed to patient derived—cells),
with a focus on haploidentical transplantations (transplantations that use cells from partially matched—as opposed to fully
matched—donors and recipients). While potentially valuable, allogeneic therapies are relatively complex, risky, and expensive.
A key driver of this complexity and associated costs is the conflict between host and donor immune systems, as discussed above.
Our technology, which
in preclinical studies has shown the ability to enable tolerance of donor cells without affecting other immune processes, is fundamentally
enabling. We expect it to significantly increase the safety, reduce the cost, and therefore broaden the scope of indications for
such procedures.
Over time, we
aspire to apply these technologies to autologous therapies (the processing and re-transplantation of an individual’s
own cells) for example for the treatment of B cell malignancies. All of these treatments would take the form of non-invasive
cell suspension treatments administered intravenously. The currently planned treatment modality of fully personalized
medicine (i.e., using the patient’s own cells or those of a donor provided expressly by that patient) could, in some
cases, eventually be supplanted by a more generic “off the shelf” modality offering which would be marketed as a
pre-packaged suspension of cells and medium, taken and stored in advance for each cell “type” and then shipped to
patients with the same “type” who have never met the donor. This delivery model is a longer term aspiration for
us and is beyond the scope of our current market share projections.
Our Value Drivers
Our current positioning
in the cell-therapy and cancer therapy value chain is typical of an early clinical stage company: developing, validating and attaining
regulatory approvals for the various applications of our technology platforms. Going forward, once the products are commercialized,
physician and patient interest in these treatments is expected to drive insurer reimbursement for patients – a key demand
lever. The generic value chain for biotechnology development commences with an invention which is formulated, patented and successful
in pre-clinical animal trials. We have already passed this stage with our core platforms (Veto-Cell and Organsource). The next
steps in development include human trials (testing first safety and then efficacy). Finally, the offering earns regulatory approval
and patient treatment, along with the ensuing revenues, can commence. This can be a particularly lengthy process in the United
States and therefore some medical treatments are approved in Europe or Asia and generate revenues there prior to commencing U.S.
sales. Recently passed “fast track” regulation in the U.S. is aimed at getting critical treatments for life threatening
conditions to patients more quickly.
Our successful
preclinical validation of the Megadose Drug Combination treatment and the Veto-Cell treatment involved basic laboratory
research including both in-vivo (live) animal trials and in-vitro (in a glass dish) human cell trials. This validates the
protocol prior to commencing human clinical trials. Human clinical trials fine-tune the treatment protocol and confirm both
safety and efficacy in treating patents. In parallel, the patents on the core technology go into the national phase in
various countries and are emended with claims associated with exact treatment protocols, bolstering the protection afforded
by already issued patents on the base technology.
In some cases, successful
biotech companies have been able to capitalize on positive human clinical results (even prior to full approval for patient treatment)
by either signing lucrative non-dilutive distribution option deals or by being partially or fully acquired by larger market participants.
There is no indication or assurance that we are currently under consideration for any option or acquisition deal.
We are poised to commence
human trials for the Megadose Drug Combination treatment and concurrently finalize human treatment protocols and seek approval
for the Veto-Cell based treatments.
We have had positive
preclinical results for three of our cell therapy treatments and for our organ generation and regeneration treatments. Yeda, the
proprietary owners of the patents underlying our technologies from whom we license our patents, has been granted patents for its
original Veto-Cell and for organ generation. The revised versions of the veto cell, additional organs for “Organsource,”
and the combination of the Megadose treatment with a currently FDA approved drug (as a combined treatment) are the subject of a
pending patent that leverages the priority of the already granted parents for organ generation, Veto-Cell and Megadose, respectively.
We plan to conduct human clinical trials with terminal patients in remission. If these trials are successful, they will demonstrate
both safety (the patients survived and were not harmed) and initial indications of efficacy (there are signs of prolonging the
progression free period).
Science and Technology Overview:
Our Technology Portfolio
is comprised of two proprietary platforms. All the patents are owned by Yeda, and we license them exclusively on a worldwide bases.
The two platforms are: Anti Third Party Veto-Cell and Organsource. Each platform already has been granted patents and has further
patents pending.
The following sections
provide an overview of each platform. Further information on the underlying science is available upon written request and the execution
of an appropriate nondisclosure agreement.
Our primary focus is
the Veto-Cell platform. When we licensed the Veto-Cell platform at our inception, we also exclusively licensed from Yeda the Organsource
platform.
Platform I – Veto-Cell:
Background
Our Veto-Cell technology is
a next generation cell-therapy technology that enables the selective attenuation of the immune system. In other words, pre-clinical
studies suggest that the treatment has the ability to reduce the immune response to selective “threats,” with low risk
for adverse side effects.
What makes the Veto-Cell approach
unique is the degree to which it leverages the inherent specificity of the human immune system. The immune system defends the body
by creating a specific stream of T-cell clones for each of millions of individual threats. A given T-cell will attack only its
specific target, ignoring all other threats. Our technology might enable the physician to selectively attenuate immune response,
thus effectively “switching-off” an individual stream of T-cell clones without affecting any other such streams of
T-cell clones dispatched by the immune system to attack unwanted incursions.
The technology is based on the
discovery that certain T-cells have the property of attracting and proactively neutralizing immune attacks on them.
The technology has achieved
distinctive results in animal live trial models.
See, e.g.
, Thorsten Zenz,
Exhausting T cells in CLL
,
Blood,
Feb. 28, 2013, at 1485. If it succeeds in human clinical trials, we believe that it may have meaningful and potentially broad impact
on the field of bone marrow transplantation:
|
1.
|
Significantly improve outcomes of transplantations by reducing host rejection rate of T-cell depleted
bone marrow, markedly reducing both the risk of graft-versus-host-disease and the need for using aggressive amounts of immunosuppression
medications. This would significantly reduce the bone marrow transplant mortality rate (currently 50%) and therefore lead to broader
use of this treatment.
|
|
2.
|
Substantively increase the number of transplantations by enabling lower myeloablative conditioning
and therefore making the therapy accessible to older and sicker patients (who today may not survive ablation).
|
|
3.
|
Further increase the number of transplantations by making transplantation appropriate for other
indications (for which today transplantation would be considered an inappropriately risky treatment).
|
In addition, our Veto-Cell technology
may possibly play a role in the treatment of a number of serious and currently poorly treated non-malignant diseases. Furthermore,
initial animal trials have shown potential anti-lymphoma activity.
Mechanism
Our Veto-Cell is a CD8 central
memory anti-3rd party T-cell that has five critical properties:
|
1.
|
It has an outer surface coating that triggers attack by specific host T-cells (and only those specific
T-cells).
|
|
2.
|
It can annihilate an attacking T-cell without itself being damaged (specifically, it exposes or
releases a death-signaling molecule when an attacking T-cell binds to it).
|
|
3.
|
It has been oriented to attack cells of a simulated third party (i.e., neither host nor donor)
and thus exhibits markedly reduced risk of GVHD or graft rejection.
|
|
4.
|
It is long-lived and endures in the body for extended periods.
|
|
5.
|
It migrates to the thymus and lymph nodes.
|
The outcome is that when a large
number of these cells are introduced into the body, they effectively eliminate the T-cell clones that the immune system dispatches
to attack the desirable, transplanted bone marrow cells.
Thus, for example, if a population
of Veto-Cells is derived from a donor, they will express the same peptide as do the donor’s cells. Therefore, the specific
stream of host T-cells that would ordinarily attack the donor stem-cells, are instead directed to “decoy” Veto-Cells
and disabled before they reach the transplantation.
Described in a Blood editorial
as a “substantial advance in Cell Therapy," a notable characteristic of our Veto-Cell is that this mechanism is quite
specific. Only those specific T-cell clones that were generated to attack cells from this specific donor are disabled. The rest
of the immune system essentially remains intact.
This is in marked contrast with
conventional immunosuppression which degrades the entire immune system and is therefore associated with severe risk of infection
and, in the case of bone marrow transplantations, high mortality.
This effect is long-lived. Firstly,
the Veto-Cells themselves are long-lived memory cells. Secondly, when infused with bone marrow cells the latter migrate to the
thymus where, over time, they create a new “identity” in the host and initiate “chimerism,” where the host
and donor cells peacefully co-exist. This chimerism has the effect of "educating" new T-cells being generated by the
thymus to tolerate donor cells. This tolerance can become permanent.
Target Indications
Our Veto-Cell technology, an
intravenously administered cell suspension, if successful, could initially be used in bone marrow and other transplantations associated
with malignant disorders (i.e., cancers). At a later stage, Veto-Cell technology may be applied to selected non-malignant conditions.
The following sections provide a brief overview of the use of the Veto-Cell technology in both of these scenarios.
|
i.
|
Bone Marrow Transplantation
|
In order
to describe the effect of Veto-Cells in transplantation, it is helpful to first briefly review the state of the art:
In a conventional bone marrow
transplant, the recipient first receives myeloablative conditioning – powerful chemotherapy and/or radiation therapy intended
to destroy his/her own bone marrow cells. This has a threefold purpose:
|
1.
|
It destroys the host T-cells so they will not attack (reject) the donor bone marrow cells.
|
|
2.
|
It makes space in the host bone marrow for the new donor cells.
|
|
3.
|
It destroys diseased host blood cells so that they do not proliferate and cause relapse following
the procedure.
|
In practice
however, there are two major problems:
|
·
|
Host rejection – the myeloablative
conditioning does not destroy all the host T-cells. Those that remain may aggressively attack the donor bone marrow cells before
they can engraft.
|
|
·
|
“Graft versus Host Disease”
(GVHD) –the transplanted cells include donor T-cells which recognize the host's body as foreign and attack it.
|
Both rejection and GVHD are potentially
life-threatening complications in and of themselves and also lead to the use of dangerous and costly immunosuppression medications.
The Megadose technology addresses the foregoing two problems by introducing an extremely large population of selected donor cells
into the host. This overwhelms the remaining host immune system, and therefore, reduces the risk of rejection. It also reduces
the risk of GVHD, as the donor cells are selected so as to minimize the number of accompanying T-cells.
Megadose is a well-developed
technology and is now used in clinical treatments where a “mismatched” bone marrow blood cancer transplantation is
in order.
|
ii.
|
Veto-Cell in Transplantation
|
The Veto-Cell technology is a
next generation of the Megadose concept. In a transplantation scenario, a population of donor Veto-Cells is created to "escort"
the bone marrow cells when they are transplanted. This population is created by identifying donor cells with Veto-Cell properties,
exposing them to simulated 3rd party cells (i.e., selecting only those that react to a third person and therefore by definition
will not react to either host or donor), and expanding their population in the lab.
The Veto-Cells are then introduced
into the host along with the transplanted stem-cells. The host mounts its normal immune response to the donor cells by generating
a population of T-cell clones that will bind to any cells expressing markers from this specific donor. In a conventional transplantation,
these T-cells would bind to and destroy donor stem-cells thus causing rejection of the transplant.
However, when the transplantation
is accompanied by large numbers of Veto-Cells, this rejection mechanism is “ambushed." Since the Veto-Cells express
the same donor markers as the stem-cells, the host T-cell clones will attempt to bind to the donor-derived Veto-Cells as noted
above, which act as decoys by attracting and then counterattacking and killing the clones before they ever reach the bone barrow
transplantation.
|
iii.
|
Direct Anti-Cancer Effect
|
A further effect of Veto-Cells
has been noted in mouse and in-vitro studies: donor Veto-Cells selectively attack host lymphoma malignant cells. This effect has
been robust in animals, in fact completely eradicating lymphoma in mouse models (see Development Status section below).
The direct anti-cancer effect
has been documented for several human B cell malignant lines, however, preliminary experiments with human anti-3
rd
party
veto cells prepared in a slightly different protocol than that used for the mouse studies, indicate that further optimization and
verification are required before killing fresh human B-CLL or myeloma tumor cells could become a feasible option.
If this effect transfers to human
patients, it may have significant therapeutic value for the above disorders, which as noted hereafter in the Marketing Strategy
section, are among the largest blood cancer markets.
|
iv.
|
In Non-Malignant Diseases
|
As discussed above, there are
two major categories of non-malignant disorders that the Veto-Cell technology aspires to address: non-malignant hematological disorders
and organ transplantations.
In the case of organ transplantations
and congenital non-malignant hematological disorders, the goal of the veto cells is to enable transplantation (bone marrow or organ)
by reducing host/donor immune system conflicts.
For example, in the case of congenital
non-malignant diseases such as sickle cell anemia, the body’s bone marrow produces “flawed” cells. An effective
treatment is HSCT which replaces the flawed host bone marrow with healthy donor cells. These cells then produce healthy blood cells,
basically curing the anemia. As noted elsewhere however, today HSCT is a risky procedure because of the graft/host immune conflicts.
It is therefore used infrequently to treat sickle cell disease. The Veto-Cell tolerizing technology would increase the target population
for this treatment by significantly reducing these conflicts and by extension the procedure’s risk. Likewise, if permanent
tolerance to donor hematopoietic cells is induced under safe conditions, the new immune status could permit acceptance of a kidney
from the same donor, without further requirement for a toxic immune suppression currently used in organ transplantation. This means
that patients who today are required to take expensive and sometimes debilitating anti-rejection medication daily for the rest
of their lives would no longer have to do so.
Development Status
The Veto-Cell platform has been
extensively tested by in vitro studies (on both human and mouse disease) and confirmed in animal trials. The results appear to
be consistently effective.
|
1.
|
Immune-system management:
|
The following images show some
example data from the Veto-Cell animal studies. Skin of black mice has been grafted onto the backs of white mice. The data show
that T-cells from host and donor mice are fully coexisting in the treatment group using the Megadose treatment (“chimerism”).
This is done using high levels of immune suppression that are associated with high mortality. Our Megadose drug combination aspires
to produce the same results with lower, safer levels of immune suppression.
|
2.
|
Anti-lymphoma tumor cells action:
|
The anti- lymphoma tumor effect
also appears to be consistently effective. The data below shows mice with non-Hodgkins lymphoma treated with Veto-Cell therapy.
The control group mice (A) have
pronounced tumors by day 21, and have all died by day 28. By contrast, the Veto-Cell treatment group (B) show no tumor and all
are still healthy by day 100.
We are less confident about
the status of anti-human B-CLL as initial experiments in-vitro were not satisfactory as outlined in our progress report: “While
marked progress has been made in developing a protocol for the generation of human Tcm either from normal donors or from B-CLL
patients, the Tcm fail to kill autologous B-CLL tumor cells in-vitro. This problem might arise from the secretion of protective
cytokines which can accumulate during the culture. This problem which is currently addressed as outlined below, can adversely affect
our plans to start a clinical trial with autologous Tcm in patients with B-CLL.”
Administration
We envision that Veto-Cell therapy
will be administered in an in-patient setting, typically as part of the existing preparation procedures for bone marrow transplantations.
Blood will be taken from the donor. The frozen blood will be sent to a regional Company center where the Veto-Cells will be developed
and expanded – a process that lasts up to two weeks. The Veto-Cells will then be sent to the transplantation center where
they will be infused to the patient intravenously along with the transplantation.
Patent Status
The original Veto-Cell is protected
by three granted patents and multiple additional pending patents in various countries. The patent for the current central memory
or Tcm Veto-Cell, which is slated for human clinical trials, is still pending; however, the patent benefits from the priority of
the previous Veto-Cell patents because these earlier versions act as “prior art” thereby bolstering the current patent
application. The patents provide coverage on the Veto-Cell technology as discussed in the IP section below.
Development Roadmap
The Veto-Cell platform roadmap
comprises three main programs as outlined in the table below. The specific clinical trials planned for each are detailed in the
Clinical Trials section of this document.
Offering
|
|
Objective
|
|
Major Activities
|
|
Estimated start date
|
Megadose drug combination (a distinct treatment from the Veto platform)
|
|
Validate and introduce new commercial treatment to increase engraftment of allogeneic bone marrow transplantations
|
|
1. Regulatory
approval and treatment protocols
2. Conduct
human clinical trials
3. Develop
plan for commercial exploitation
|
|
•
Commence
a formal company-sponsored Phase I/II clinical trial by the end of 2014
•
Interim
analysis within 18 months thereafter
|
Anti-lymphoma veto cell
|
|
Validate the possibility of introducing commercial Veto-cell treatment for lymphoma, multiple myeloma and B-cellchronic lymphocytic leukemia (BCLL) based on autologous transplantation
|
|
4. Define
feasibility of using human veto cells for killing fresh CLL tumor cells ex-vivo or in experimental mouse models
5. Develop
large scale production protocol (GMP process)
6. Conduct
human clinical trials to validate safety and efficacy
|
|
•
Protocol
validation and production process development already underway
•
If
preclinical studies are successful , human trials would be the next step
|
Anti-rejection veto cell
|
|
Validate and introduce commercial Veto-cell therapy for reducing rejection in allogeneic bone marrow transplantation for blood-cancers
|
|
7. Develop
large scale production protocol (GMP process)
8. Conduct
human clinical trials to validate safety and efficacy
|
|
•
Production
process development already underway
•
Production
process for this Investigational New Drug (IND) may be approved in 18-24 months, Human trials may be approved in 24-30 months depending
on regulatory approval cycle
|
Platform II – Organsource:
Overview
Organsource is Yeda's patented
technology, as referenced above. It has been granted patents in the United States and Europe. Organsource addresses the growing
shortage of organs for human transplantation.
The key discovery has two elements:
|
·
|
Embryonic tissue (taken from an animal
or human fetus during gestation), which can be identified as organ precursors that will grow into specific organs (e.g., kidney,
liver, pancreas), can be harvested at a very specific moment in the gestation period where they have just then become “committed”
organ precursors and thus have not yet begun to generate the acute levels of rejection otherwise typical for xenotransplant (i.e.,
between species) which have been problematic in other earlier studies transplanting porcine tissue into humans.
|
|
·
|
These pre-organs can be successfully transplanted
into a host, even of another species, and grow into functional organs in the host with only the level of organ rejection associated
with an allogeneic organ donor, which can currently be managed through medication. Incidentally, this post transplantation rejection
could potentially be further reduced by using Veto-Cells.
|
This means that porcine embryonic
tissue can potentially become a source for human organ replacement. We intend to exercise our option to license this technology
and intellectual property.
Background
The main focus of the Organsource
work to date has been demonstrating that organ precursor tissue can be successfully transplanted into both rodents and primates
from pigs.
Pigs have long been considered
the ideal source of organs for human transplantation for two reasons:
|
·
|
Their organs are similarly sized to humans,
and
|
|
·
|
They have large litters so can provide
extensive supply (unlike for example monkeys).
|
However, others’ previous
experimental efforts to transplant porcine organs into primates have shown only limited success because a certain marker on pig
blood vessels causes a hyper-immune response in primates (which, for example, have immediately killed organ recipients in trials
with monkeys).
Mechanism
The Organsource technology avoids
the hyper rejection problem by extracting embryonic pig tissue in a highly specific development window. Cells within this momentary
window can grow inside the host using blood vessels of the host, not donor, origin. Therefore, they do not trigger the host hyper-immune
response. However these embryonic organ precursors have developed sufficient organ differentiation to act as pre-organs in the
host, and they grow into functional developed organs, in the case of primates, within a few months.
Specifically, a mouse with Type
1 diabetes received a transplanted porcine pre-pancreas, which grew into a full sized pancreatic organ largely composed of beta
cells which secrete insulin, thus effectively treating diabetes in the mouse. Similar results have also been achieved in monkeys.
Target Indications
Organsource could theoretically
provide a significant new source of transplantation organs for major human organ needs.
Work so far indicates positive
results for growing a pancreas to replace one in which beta cells have been chemically disabled leading to a disease similar to
that found in Type 1 Diabetes.
Development Status
Organsource is at an early stage
of development relative to the Veto-Cell platform. However, in-vitro results and animal trials have shown positive progress. For
example:
|
·
|
Porcine spleen tissue was successfully
implanted into a mouse, effectively treating hemophilia.
|
|
·
|
Embryonic lung cells have shown effectiveness
in repairing injured mouse lungs and are currently being tested on cystic-fibrosis mice. In principal, these could potentially
be used to effectively treat several major lung diseases.
|
|
·
|
Porcine pancreatic cells were successfully
infused into monkeys where they effectively corrected chemically induced diabetes. The chart below shows exogenous insulin requirements
of the subject animal (vertical axis) as a function of the number of days following the transplantation (horizontal axis).
|
Note that within days of the
transplantation, the insulin requirements drop sharply, indicating that the porcine cells are now producing insulin in the monkey,
and 10 months after transplantation the monkey is diabetes free. Considering that in these experiments the recipient body weight
is small, and a large dose of tissue was used for transplantation, it could be argued that our approach might not be feasible for
treating large human adults. In other words, the number of porcine pancreases required for the dosage for treating a large human
being may prove to be prohibitive.
Administration
Administration of Organsource
is may be less invasive than a typical organ transplantation procedure. In the case of smaller organs such as the pancreas, Organsource
transplantation requires only a relatively minor procedure. This is because precursor cells rather than full grown organs are being
introduced.
Since the embryonic implants
can promptly attract blood vessels they therefore can be placed in sites in the body nearer to the surface of the skin instead
of deeper internal sites such as the pancreatic cavity.
Patent status
A U.S. patent has been granted
for porcine liver generation and a European patent was recently granted for pancreas generation. Patents for heart, kidney, lung,
and lymph glands are pending. There is also a patent pending for repairing existing lung tissue using human embryonic cells.
Development Roadmap
Our Organsource roadmap is to
continue animal testing in vivo, with an eventual aspiration to human trials. Organsource’s next animal tests will attempt
to regenerate healthy lungs in mice that currently have diseased lungs and to refine the process of and specific tissue doses required
for regenerating pancreases in monkeys and to address organ rejection in such pancreatic procedures. Organsource’s first
human trials, which we don’t forecast occurring within the next five years, will most likely concern porcine pancreatic tissue
to humans or using human embryonic cells to effectively treat diseased lungs.
Products and Services
Currently, we do not
have any products, and there is no assurance that we will be able to develop any products.
Our initial products
will likely be based on the Veto-Cell platform. We are also about to commence human trials for a new product that combines Dr.
Reisner’s existing Megadose technology with an existing generic FDA approved drug. This combination of products has a potential
to be an early source of revenues. Additionally, the Organsource platform may potentially generate products and revenues in the
longer term.
The following products
are currently planned and represent most of the projected revenues presented in the financial section:
|
1.
|
“Anti-rejection” veto-cell tolerance therapy for both matched and mismatched allogeneic
bone marrow transplantations
. This is our flagship (as an initial platform for increasing transplantation success) and is focused
on allogeneic bone marrow transplantations.
|
Treatment will comprise a course
of infusions of Veto-Cells derived from the donor and processed in a Company facility that will be accessible to the transplantation
center at the time of transplantation.
|
2.
|
“Anti-cancer” veto-cell therapy for lymphoma, multiple myeloma and BCLL
. This
is an intravenous cell-suspension-based cell-therapy focused on lymphocyte cancers.
|
This therapy will comprise a
course of infusions derived from the patient’s own blood and prepared for autologous transplantation. (In cases of allogeneic
transplantation, donor cells will be used.) This treatment exploits the observed effect that Veto-Cells tend to selectively attack
lymphoma cells that is described in the Technology section.
|
3.
|
Veto-Cell tolerance therapy for non-malignant disorders
. This is the application of Veto-Cell
technology to treatment of non-malignant (i.e., non-cancerous) diseases. As discussed in the Technology section, a custom treatment
would be developed for each selected disorder.
|
Target indications
for Veto-Cell therapy for nonmalignant disorders are likely to be: tolerizing therapy for allogeneic transplantations for sickle
cell anemia and aplastic anemia (by using bone marrow transplantations as referenced in no. 2 above) and tolerizing therapy for
conventional organ transplantations.
Competition
The development and
commercialization of new cell therapies is highly competitive. Our products are focused on treatment of blood cancers, non-malignant
blood disorders and organ transplantations. Various products are currently marketed for the treatment of blood cancers. A number
of companies are also developing new treatments. In addition to competition from a variety of other nascent unconventional medical
treatments, we also face competition from established pharmaceutical and biotechnology companies, as well as from academic institutions,
government agencies and private and public research institutions worldwide. For instance, our competitors include the technology
developed by Micromet, Inc., which was since acquired by Amgen Inc. and Avila Therapeutics, a wholly-owned subsidiary of Celgene
Corporation.
Many of our competitors
have significantly greater financial resources and expertise in research and development, manufacturing, pre-clinical testing,
conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Earlier stage companies
may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.
While our commercial opportunities may be reduced or eliminated if our competitors develop and commercialize products that are
safer, more effective, have fewer side effects or are less expensive than our own products, we believe that if our human trials
show efficacy at the same levels of our animal trials, we would have the potential to develop at least a niche market share.
We expect that
our ability to compete effectively will depend upon our capacity to:
|
·
|
successfully and complete adequate and well-controlled clinical trials that demonstrate statistically significant safety and
efficacy and to obtain all requisite regulatory approvals in a timely and cost-effective manner;
|
|
·
|
effectively use patents and possibly exclusive partnership agreements with important treatment facilities to maintain a stable
competitive stance for our Technology;
|
|
·
|
attract and retain appropriate clinical and commercial personnel and service providers; and
|
|
·
|
establish adequate distribution relationships for our products.
|
Failure in efficiently
developing and executing these capabilities may have an adverse effect on our business, financial condition or results of operations.
Strategy Overview
Our strategy is based
on two underlying drivers: (a) that animal studies show Veto-Cell technology to be consistently effective; and (b) that the lead
indications (certain blood cancers) are relatively common, have high mortality and have limited treatment options today.
Based on the foregoing
drivers, we have developed a business plan with the objective of obtaining regulatory approvals and subsequently launching product
sales with a focus on Europe, Asia and the United States.
Key Strategy Elements
We are pursuing a staged
entry strategy. The first several years will be narrowly focused, both in terms of market segments (Lymphoma, 3rd party clinical
trials and bone marrow transplantation) and products (Megadose drug combination and then, hopefully, our Veto-Cell platform).
Subsequently, we plan
to broaden the segmentation strategy to include additional bone marrow transplantation indications as well as selected genetic
non-malignant diseases. The product strategy may also be broadened to include the Organsource platform.
Our strategy can be
summarized as follows:
Strategy
Element
|
|
Introductory
period (years 1 -3 post FDA
approval)
|
|
Years
4+
|
Market Segments
|
|
·
Lymphomas
and BCLL
·
Other
bone marrow transplantation in acute fatal conditions with no current medical treatment
|
|
·
Lower
criticality/higher volume segments (non-malignant diseases)
|
Product Rollout
|
|
·
Autologous
Veto-Cell therapy for lymphocyte cancers
·
Allogeneic
Veto-Cell therapy for bone marrow transplantation tolerance
|
|
·
Veto-Cell
therapy for additional transplantation indications
·
Veto-Cell
therapy for non-malignant disorders
·
Trials
of Organsource platform
|
Customer/ Geographic Focus
|
|
·
North
America
·
Western
Europe
·
China
|
|
·
North America, Western & Eastern Europe, Russia, Brazil, selected Asian markets
|
Channels/Go to Market
|
|
·
Direct relationships with leading transplantation centers
|
|
·
Additional
relationships with leading oncologists
·
Sponsored
conferences for oncologists and transplantation providers in key regions
|
Pricing
|
|
·
Consistent with other cell therapy offerings currently associated with transplantations
|
|
·
Potentially higher volume, lower cost for “off the shelf” offerings
|
Operations
|
|
·
Three
operating centers :
·
US
East Coast
·
US
West Coast
·
Western
Europe
·
Operating
centers in lab-space leased from major transplantation centers.
|
|
·
Eight
operating centers
·
US
East & West Coasts, Western Europe, Russia, Brazil, Japan, China, Australia/New Zealand
·
Operating
centers in company-owned facilities
|
Segment Selection
Within the general
market for immune therapies, hawse have selected target market segments (i.e., medical conditions) for initial focus based on two
(2) key criteria:
|
1.
|
Severity of medical need:
degree of severity of the indication and the effectiveness of
existing treatments. These criteria help determine the proper regulatory pathway.
|
|
2.
|
Technology relevance:
relative value of the ability to manage immune response to the treatment
of a given indication.
|
We will initially focus
on indications that score highly with respect to both criteria (e.g., Multiple Myeloma and BCLL). These conditions may qualify
for Fast Track status with the FDA, and, due to the cost of current treatment alternatives, could potentially support profitable
price points for effective new treatments.
Product Rollout
Cell Source may commence
human clinical trials with its first commercial product as early as 2014. Future products may include Veto-Cell tolerance inducement
therapy for allogeneic bone marrow transplantations and Veto-Cell cell therapy for lymphoma.
Following the initial
market penetration and establishment of solid market positioning, we plan to broaden the product offering to address a wider variety
of indications which may include custom Veto-Cell developments for specific non-malignant diseases and continued work on Organsource.
Customer/Geographic Focus
Assuming positive clinical
trials, we will initially focus our sales efforts of Veto-Cell autologous therapy on centers dealing with Stage 4 Lymphomas. High
profile, high volume HSCT facilities can be targeted to market the Megadose drug combination, possibly augmented in the future
by Veto-Cell therapy.
Current plans are to
introduce the products first in North America and Western Europe, and, perhaps concurrently, in China. Focusing on key transplantation
facilities in target geographic markets will allow us to both refine the administration of our products and bolster our reputation
in respective markets.
After the introductory
period, we plan to expand its activities in its initial markets while simultaneously broadening geographic coverage. In Stage 2,
we plan to initiate active marketing efforts in the remaining Western European countries, Japan, Australia, Eastern Europe, Russia
and Brazil.
Marketing Strategy
The initial target
market is concentrated and networked. It comprises the approximately 40 leading transplantation centers in the target geographies.
As discussed in the Market Access and Channels section, these centers are well connected to each other and tend to quickly share
innovations and best practices.
The planned penetration
strategy is to introduce Veto-Cell into the best-known and most influential centers in North America and Western Europe, and benefit
from the exposure and industry leadership provided by these centers.
This initial penetration
strategy includes incorporating these centers into the clinical trials so as to expose and involve their medical leadership.
In the longer term,
we plan to drive use and awareness within and across the broader oncology community in order to encourage oncologists to refer
their patients to centers that already use our products and therapies and to encourage pull-influence on additional centers to
adopt our products and therapies.
The broader provider
community will be addressed by attending conventions where research and best clinical practices are shared, seminars are conducted,
and networking opportunities are provided for the physicians.
Operating Strategy
Veto-Cell doses are
to be prepared by our personnel (not outsourcers) in our facilities. This is to both protect trade-secrets and directly control
quality during the initial stages.
The graphic below outlines
the general operating model in each geographic market.
Patient care facilities
send frozen cells (donor and/or host depending on application) to a Cell Source processing center. Most likely, the first processing
center will consist of lab space leased from a large transplantation center. Such a transplantation center has appropriate equipment
and infrastructure, along with available production capacity, and will also represent an immediate market for our offerings for
use in their own procedures. The Cell Source processing center processes the cells and sends the treated cells and appropriate
protocols back to the caregiver for infusion at time of transplantation.
In the introductory
period, we plan on establishing two centers in the U.S. (East and West Coast), one in Western Europe (most likely Germany), and
one in China. Specific locations and timing are to be determined. Initially, we plan to outsource production capacity from existing
facilities at or adjacent to large hospitals. Subsequently, sales from these centers can justify and fund stand-alone facilities.
The general goal of
the initial four centers is to support the FDA process, provide full coverage for the North American and European markets, and
provide access to the developing Chinese market. Following the introductory period in each respective market, we may elect to migrate
the production facilities from leased space in transplantation center laboratories to company-owned stand-alone facilities.
In general, we assume
a capital cost per stand-alone production facility of $8M. This estimate is based, in part, on the projected high costs of GMP
“clean rooms,” each of which can cost $1 million to set up. We will need to obtain financing in order to fund the setup
of such facilities. There can be no assurance that financing will be available in amounts or on terms acceptable to us, if at all.
Clinical Trials Overview
We will initially focus
our clinical trials on certain lymphomas and leukemias, for which our Veto-Cell technology constitutes a potential breakthrough.
These two indications have unmet needs, as evidenced by the recent acquisitions of lymphoma/leukemia biotechnology firms Micromet
and Avila Therapeutics for $1.16B and over $350M in cash, respectively. These acquisitions are especially notable because their
respective lead treatment candidates were then only in Phases 1 and 2 of clinical trials.
We plan to initiate
a company-sponsored "Phase 1/2" clinical trials by the end of 2014. These trials combine traditional Phase 1 safety trials
with Phase 2 efficacy trials inasmuch as they are safety trials conducted on sick patients, so they are able to both establish
safety and show initial indications of efficacy concurrently. The goal is to demonstrate safety and initial efficacy in several
indications. Management has structured the trials such that an additional goal of showing initial markers pointing to prolonging
progression-free survival may be possible already within Phase 1/2.
The chart below provides
an overview of the current trials plan, which can of course vary based on both finalization of human protocols and timing or regulatory
approvals:
Trial Plans
Trials will be conducted
concurrently in Parma, Italy and Wurzburg, Germany. Multiple trials are planned on at least 16 patients. Patients are expected
to be age 55 and older. The conditions chosen are ones which are associated with high mortality in this patient age-group today.
This means that we may obtain a limited scope of patient reimbursement from government insurance in Europe on compassionate grounds
for the treatment of said age group upon successful completion of Phase 2 trials. The following trials are planned for each center:
Italy
|
|
Germany
|
1
|
Megadose + currently FDA approved drug
|
|
1
|
Megadose + currently FDA approved drug
|
2
|
Anti-rejection Veto-Cell
|
|
2
|
Anti-rejection Veto-Cell
|
3
|
Anti-lymphoma veto cell
|
|
3
|
Anti-lymphoma Veto-Cell
|
4
|
Possibly sickle cell anemia or aplastic anemia (allogeneic transplant)
|
|
|
|
5
|
Possibly Veto-Cell to obviate need for organ transplant immune suppression treatment
|
|
|
|
Regulatory Issues Overview
We seek regulatory
approval from the U.S. FDA, the EMA in Europe and similar agencies elsewhere to both produce and sell our products.
Key approvals in Europe,
where both treatment and limited insurance reimbursement may be possible at the end of Phase 2 trials, are expected to accelerate
approval by the U.S. FDA. Given the importance of the U.S. market, we will conduct trials with a view to conforming with FDA guidelines
so as to utilize clinical data gathered outside the U.S. in seeking to qualify for FDA approval.
In the longer-term,
we may also seek regulatory approval for selected Organsource applications. In addition, we are exploring potential sources of
near-term revenue, namely the combination of the broadly used Megadose with already FDA-approved agents.
Regulatory Process and Expectations
We will develop our
clinical trial protocols with the support of experienced FDA and EMA consultants.
The clinical trials
outlined in the previous section are designed to lead to regulatory approval for Veto-Cell-based therapy in treating blood cancers
and bone marrow transplantation applications.
Interim Revenue Opportunities
As noted above, while
the clear focus is to conclude Phase 3 approval for cancer treatments, the Company is also exploring complementary “quick
win” opportunities for generating revenue before additional FDA approvals are received, namely:
|
1.
|
Treating European patients after the end of Phase 2 (in some cases possibly with insurance reimbursement
available); and
|
|
2.
|
Exploring an interim improved bone marrow transplantation mechanism by combining Megadose with
current FDA-approved agents.
|
Intellectual Property
Pursuant to the Yeda
License Agreement, Yeda granted the Company an exclusive license to certain patents, discoveries, inventions and other intellectual
property generated (together with others) by Dr. Reisner as head of the Immunology Department at the Weizmann Institute. Under
the Yeda License Agreement, The Company grants Yeda an industry-standard 4% royalty on sales of patented products. Currently, the
Company voluntarily funds research (on its own behalf) and the Weizmann Institute for the preclinical development of its products,
and plans to do so in the foreseeable future. Should the Company elect to curtail such funding, it would have to pay a $50,000
annual license fee until such times as payment of royalties commences. The Yeda License Agreement also requires the Company to
proceed with the development of the technologies on a timely basis.
Also under the Yeda
License Agreement, the Company agreed to fund Yeda’s research until October 3, 2018, with an aggregate of US$800,000 paid
in quarterly installments. However, in the event that the Company and Yeda execute a new research and license agreement, then the
Company will annually fund research in the amount of US $900,000 until Oct. 3, 2018. Such a new research and license agreement
must be in accordance with the Evaluation and Exclusive Option Agreement by and between the Company and Yeda, dated Oct. 3, 2011,
as amended on April 1, 2014 and June 22, 2014 (the “E&O Agreement). Among other things, the E&O Agreement grants
Cell Source an option to negotiate a commercial license in the field of organ transplantation with Yeda (the “Option to Negotiate”).
The Option to Negotiate requires an initiation fee of $200,000 payable to Yeda, which may be paid on the later of (i) the date
on which the Option to Negotiate is granted and (ii) the date on which the Company receives an aggregate investment amount of at
least US $10,000,000. The Option to Negotiate expires on September 1, 2014.
If the Company fails
to achieve any one of the milestones set forth in the Yeda License Agreement, which are listed below, then Yeda will be entitled
to (i) modify the related license such that it will become non-exclusive or (ii) terminate the Yeda License Agreement upon thirty
(30) days written notice:
|
(a)
|
Within three (3) years of the signature of the Yeda License Agreement to commence Phase I clinical
trials with respect to the Megadose Drug Combination;
|
|
(b)
|
Within five (5) years of the signature of the Yeda License Agreement to commence Phase II clinical
trials with respect to the Megadose Drug Combination, unless the Company shall have invested, during such five (5) year period,
above an aggregate amount of at least US$5,000,000 in research and development in respect of the Megadose Drug Combination;
|
|
(c)
|
Within either (8) years of the signature of the Yeda License Agreement to receive a FDA, EMEA or
CFDA approval in respect of at least one (1) Product;
|
|
(d)
|
To achieve commercialization of at least one (1) Product within twelve (12) months of the date
of FDA, EMEA or CFDA approval; or
|
|
(e)
|
In case of a commercial sale of any Product having commenced, there shall be a period of twelve
(12) months or more during which no sales of any Product shall take place (except as a result of force majeure or other factors
beyond the control of the Company).
|
Additionally, the Yeda
License Agreement also provides that:
|
·
|
Funding the Research
. Within 60 days of receiving any capital investment in the Company
in excess of US $2,000,000 and provided that the Company has not paid Yeda by that date an option initiation fee of $200,000, as
set forth in the E&O Agreement, Cell Source will pay Yeda 20% from such excess investment up to the sum of US $200,000 (the
“Additional Research Payment”). The Additional Research Payment shall be allocated by Yeda to support research activities
of Dr. Reisner.
|
|
·
|
Title
. All right, title and interest in and to the Licensed Information and the Patents
(as those terms are defined in the Yeda License Agreement ) and all right, title and interest in and to any drawings, plans, diagrams,
specifications, other documents, models, or any other physical matter in any way containing, representing or embodying any of the
foregoing, vest and shall vest in Yeda and subject to the license granted in the Yeda License Agreement.
|
|
·
|
Patents
. Both Yeda and the Company shall consult with one another on the filing of patent
applications for any portion of Licensed Information and/or corresponding to patent application existing at the time the Yeda License
Agreement was executed. Yeda shall retain outside patent counsel that will be approved by Cell Source, to prepare, file and prosecute
patent applications. All applications will be filed in Yeda’s name.
|
|
·
|
Patents; Patent Infringements
. Where the Company determines that a third party is infringing
one or more of the Patents or is sued, in prosecuting or defending such litigation, the Company must pay any expenses or costs
or other liabilities incurred in connection with such litigation (including attorney’s fees, costs and other sums awarded
to the counterparty in such action). The Company agreed to indemnify Yeda against any such expenses or costs or other liabilities.
|
|
·
|
License
. With regard to the expiration of Patents, a Product is deemed to be covered by
a Patent so long as such Product is protected by “Orphan Drug” status (or the like). The Company has an exclusive worldwide
license under the Licensed Information and the Patents for the development, manufacture and sales of the Products. License remains
in force in each country with respect to each Product until the later of (i) the expiration of the last Patent in such country
covering such Product or (ii) the expiration of a 15-year period commencing the day FDA New Drug Approval is received for a Product
in such country.
|
The Company may grant a Sublicense
only with the prior written consent, which shall not be withheld unreasonably provided that:
|
i.
|
the proposed Sublicence is for monetary consideration only;
|
|
ii.
|
the proposed Sublicence is to be granted in a bona fide armslength commercial transaction;
|
|
iii.
|
a copy of the agreement granting the Sublicence and all amendments thereof shall be made available
to Yeda, 14 days before their execution and Cell Source shall submit to Yeda copies of all such Sublicenses and all amendments
thereof promptly upon execution thereof; and
|
|
iv.
|
the proposed Sublicence is made by written agreement, the provisions of which are consistent with
the terms of the Licence and contain, inter alia, the following terms and conditions, including: the Sublicense shall expire automatically
on the termination of the Licence for any reason.
|
However, Yeda’s prior written
consent is not needed if the sublicense is limited to China, and the Company grants it to a Chinese affiliated entity of the Company.
|
·
|
Termination
. The Yeda License Agreement terminates on the later of: (i) the expiration of
the last of the Patents or (ii) the expiry of a continuous period of 20 years during which there shall not have been a First commercial
sale of any product in any country. Yeda may terminate by written notice, effective immediately, if the Company challenges the
validity of any of the Patents. If a challenge is unsuccessful, then in addition to Yeda’s right to termination, the Company
shall pay to Yeda liquidated damages in the amount of US$8,000,000. Either the Company or Yeda may terminate the Yeda License Agreement
and the License by serving a written notice upon (i) occurrence of a material breach or (ii) the granting of a winding-up order.
Additionally, Yeda may terminate for failure to reimburse Yeda for patent application and/or prosecution expenses.
|
Our technology portfolio
includes a patented platform termed “Veto-Cell” (more formally described as “Anti 3rd party central memory T
cell”), which is an immune tolerance biotechnology that enables the selective blocking of immune responses. Specifically,
Veto-Cells are specially prepared human cells that selectively protect specific targets from undesirable immune system attack.
We have also licensed
the “Organsource” platform developed by Dr. Reisner and his team under a similar Research & License Agreement.
This is a longer-horizon technology that shows significant promise for enabling the sourcing of embryonic cellular material from
both animals and humans that can be used to both grow functional major organs in the body of a foreign “host” and regenerate
existing diseased or damaged organs. This technology was used to grow pancreases in both rodents and primates, thereby curing them
of juvenile diabetes, and has been used to regenerate human lung tissue.
Patents & Proprietary Rights
Our success will depend
in part on our ability to protect our existing product candidates and the products we acquire or license by obtaining and maintaining
a strong proprietary position. To develop and maintain our position, we intend to continue relying upon patent protection, orphan
drug status, Hatch-Waxman exclusivity, trade secrets, know-how, continuing technological innovations and licensing opportunities.
We intend to seek patent protection whenever available for any products or product candidates and related technology we acquire
in the future.
We may also seek orphan
drug status whenever it is available. If a product which has an orphan drug designation subsequently receives the first regulatory
approval for the indication for which it has such designation, the product is entitled to orphan exclusivity, meaning that the
applicable regulatory authority may not approve any other applications to market the same drug for the same indication, except
in very limited circumstances, for a period of seven years in the U.S. and Canada, and 10 years in the E.U. Orphan drug designation
does not prevent competitors from developing or marketing different drugs for the same indication or the same drug for a different
clinical indication.
It is our policy to
require our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors to execute confidentiality
agreements upon the commencement of employment or consulting relationships with us. These agreements provide that all confidential
information made known to the individual during the course of the individual’s relationship with us is to be kept confidential
and may not be disclosed to third parties except in specific circumstances. In the case of employees, the agreements provide that
all inventions conceived by the individual shall be our exclusive property.
Government Regulation and Product
Approval
Regulation by governmental
authorities in the U.S. and other countries is a significant factor, affecting the cost and time of our research and product development
activities, and will be a significant factor in the manufacture and marketing of any approved products. All of our products require
regulatory approval by governmental agencies prior to commercialization. In particular, our products are subject to rigorous pre-clinical
and clinical testing and other approval requirements by the FDA and similar regulatory authorities in other countries. Various
statutes and regulations also govern or influence the manufacturing, safety, reporting, labeling, transport and storage, record
keeping and marketing of our products. The lengthy process of seeking these approvals, and the subsequent compliance with applicable
statutes and regulations, require the expenditure of substantial resources. Any failure by us to obtain, or any delay in obtaining,
the necessary regulatory approvals could harm our business.
The regulatory requirements
relating to the testing, manufacturing and marketing of our products may change from time to time and this may impact our ability
to conduct clinical trials and the ability of independent investigators to conduct their own research with support from us.
The clinical development,
manufacturing and marketing of our products are subject to regulation by various authorities in the U.S., the E.U. and other countries,
including, in the U.S., the FDA, in Canada, Health Canada, and, in the E.U., the EMEA. The Federal Food, Drug, and Cosmetic Act,
the Public Health Service Act in the U.S. and numerous directives, regulations, local laws and guidelines in Canada and the E.U.
and elsewhere govern the testing, manufacture, safety, efficacy, labeling, storage, record keeping, approval, advertising and promotion
of our products. Product development and approval within these regulatory frameworks takes a number of years and involves the expenditure
of substantial resources.
Regulatory approval
will be required in all the major markets in which we seek to develop our products. At a minimum, approval requires the generation
and evaluation of data relating to the quality, safety, and efficacy of an investigational product for its proposed use. The specific
types of data required and the regulations relating to this data will differ depending on the territory, the treatment candidate
involved, the proposed indication and the stage of development.
In general, new cell
compositions are tested in animals until adequate evidence of safety is established to support the proposed clinical study protocol
designs. Clinical trials for new products are typically conducted in three sequential phases that may overlap. In Phase I, the
initial introduction of the pharmaceutical into either healthy human volunteers or patients with the disease (typically 20 to 50
subjects), the emphasis is on testing for safety (adverse effects), dosage tolerance, metabolism, distribution, excretion and clinical
pharmacology. Phase II involves studies in a limited patient population (typically 50 to 200 patients) to determine the initial
efficacy of the pharmaceutical for specific targeted indications, to determine dosage tolerance and optimal dosage and to identify
possible adverse side effects and safety risks. Once a treatment protocol shows preliminary evidence of some efficacy and is found
to have an acceptable safety profile in Phase II evaluations, Phase III trials are undertaken to more fully evaluate clinical outcomes
in a larger patient population in adequate and well-controlled studies designed to yield statistically sufficient clinical data
to demonstrate efficacy and safety.
In the U.S., specific
pre-clinical data, manufacturing and chemical data, as described above, need to be submitted to the FDA as part of an IND application,
which, unless the FDA objects, will become effective thirty (30) days following receipt by the FDA. Phase I studies in human volunteers
may commence only after the application becomes effective. Prior regulatory approval for human healthy volunteer studies is also
required in member states of the E.U. Currently, in each member state of the E.U., following successful completion of Phase I
studies, data are submitted in summarized format to the applicable regulatory authority in the member state in respect of applications
for the conduct of later Phase II studies. In many places in Europe, a two tiered approval system mandates approval at the regional
level prior to applying for national approval. Regional approval cycle times, including multiple iterations where questions are
answered and the specific details of the protocol may be fine-tuned, can last several months prior to applying to the national
(federal government level) regulator. The national regulatory authorities in the E.U. typically have between one and three months
in which to raise any objections to the proposed study, and they often have the right to extend this review period at their discretion.
In the U.S., following completion of Phase I studies, further submissions to regulatory authorities are necessary in relation to
Phase II and III studies to update the existing IND. Authorities may require additional data before allowing the studies to commence
and could demand that the studies be discontinued at any time if there are significant safety issues. In addition to the regulatory
review, a study involving human subjects has to be approved by an independent body. The exact composition and responsibilities
of this body will differ from country to country. In the U.S., for example, each study will be conducted under the auspices of
an independent institutional review board at each institution at which the study is conducted. This board considers among other
things, the design of the study, ethical factors, the privacy of protected health information as defined under the Health Insurance
Portability and Accountability Act, the safety of the human subjects and the possible liability risk for the institution. Equivalent
rules to protect subjects’ rights and welfare apply in each member state of the E.U. where one or more independent ethics
committees, which typically operate similarly to an institutional review board, will review the ethics of conducting the proposed
research. These ethical review committees typically exist at the regional level, where approval is required prior to applying for
national approval. Other regulatory authorities around the rest of the world have slightly differing requirements involving both
the execution of clinical trials and the import/export of pharmaceutical products. It is our responsibility to ensure we conduct
our business in accordance with the regulations of each relevant territory.
By leveraging existing
pre-clinical and clinical data, we are seeking build upon an existing pre-clinical safety and efficacy database to accelerate our
research. In addition, our focus on an end-stage population which has no current treatment options, commercialization, may result
in relatively shorter approval cycle times. Approval by the FDA in this category generally has been based on objective response
rates and duration of responses rather than demonstration of survival benefit. As a result, trials of drugs to treat end-stage
refractory cancer indications have historically involved fewer patients and generally have been faster to complete than trials
of drugs for other indications. We are aware that the FDA and other similar agencies are regularly reviewing the use of objective
endpoints for commercial approval and that policy changes may impact the size of trials required for approval, timelines and expenditures
significantly. The trend over the past few years has been to shorten approval cycles for terminal patients in the U.S. by employing
a “fast track” approach.
In order to gain marketing
approval, we must submit a dossier to the relevant authority for review, which is known in the U.S. as an NDA and in the E.U. as
a marketing authorization application, or MAA. The format is usually specific and laid out by each authority, although in general
it will include information on the quality of the chemistry, manufacturing and pharmaceutical aspects of the product as well as
the non-clinical and clinical data. Once the submitted NDA is accepted for filing by the FDA, it undertakes the review process
that takes ten (10) months, unless an expedited priority review is granted which takes six (6) months to complete. Approval can
take several months to several years, if multiple ten (10) month review cycles are needed before final approval is obtained, if
at all.
The approval process
can be affected by a number of factors. The NDA may be approvable requiring additional pre-clinical, manufacturing data or clinical
trials which may be requested at the end of the ten (10) month NDA review cycle, thereby delaying marketing approval until the
additional data are submitted and may involve substantial unbudgeted costs. The regulatory authorities usually will conduct an
inspection of relevant manufacturing facilities, and review manufacturing procedures, operating systems and personnel qualifications.
In addition to obtaining approval for each product, in many cases each drug manufacturing facility must be approved. Further inspections
may occur over the life of the product. An inspection of the clinical investigation sites by a competent authority may be required
as part of the regulatory approval procedure. As a condition of marketing approval, the regulatory agency may require post-marketing
surveillance to monitor for adverse effects or other additional studies as deemed appropriate. After approval for the initial indication,
further clinical studies are usually necessary to gain approval for any additional indications. The terms of any approval, including
labeling content, may be more restrictive than expected and could affect the marketability of a product.
The FDA offers a number
of regulatory mechanisms that provide expedited or accelerated approval procedures for selected drugs in the indications on which
we are focusing our efforts. These include accelerated approval under Subpart H of the agency’s NDA approval regulations,
fast track drug development procedures and priority review. At this time, we have not determined whether any of these approval
procedures will apply to any of our current treatment candidates.
The U.S., E.U. and
other jurisdictions may grant orphan drug designation to drugs intended to treat a “rare disease or condition,” which,
in the U.S., is generally a disease or condition that affects no more than 200,000 individuals. In the E.U., orphan drug designation
can be granted if: the disease is life threatening or chronically debilitating and affects no more than fifty (50) in 100,000 persons
in the E.U.; without incentive it is unlikely that the drug would generate sufficient return to justify the necessary investment;
and no satisfactory method of treatment for the condition exists or, if it does, the new drug will provide a significant benefit
to those affected by the condition. If a product that has an orphan drug designation subsequently receives the first regulatory
approval for the indication for which it has such designation, the product is entitled to orphan exclusivity, meaning that the
applicable regulatory authority may not approve any other applications to market the same drug for the same indication, except
in very limited circumstances, for a period of seven years in the U.S. and ten (10) years in the E.U. Orphan drug designation does
not prevent competitors from developing or marketing different drugs for the same indication or the same drug for different indications.
Orphan drug designation must be requested before submitting an NDA or MAA. After orphan drug designation is granted, the identity
of the therapeutic agent and its potential orphan use are publicly disclosed. Orphan drug designation does not convey an advantage
in, or shorten the duration of, the review and approval process; however, this designation provides an exemption from marketing
authorization (NDA) fees.
We are also subject
to numerous environmental and safety laws and regulations, including those governing the use and disposal of hazardous materials.
The cost of compliance with and any violation of these regulations could have a material adverse effect on our business and results
of operations. Although we believe that our safety procedures for handling and disposing of these materials comply with the standards
prescribed by state and federal regulations, accidental contamination or injury from these materials may occur. Compliance with
laws and regulations relating to the protection of the environment has not had a material effect on our capital expenditures or
our competitive position. However, we are not able to predict the extent of government regulation, and the cost and effect thereof
on our competitive position, which might result from any legislative or administrative action pertaining to environmental or safety
matters.
In various countries,
animal rights activism has led to either formal or informal boycotting of certain types of animal trials. As we rely on animal
experiments as precursors to human trials.
Employees
We currently do not
have full-time employees, but retain the services of part-time staff on an independent contractor/consultant and contract-employment
basis. However, our Board of Directors intends to negotiate an employment package for our Chief Executive Officer, Itamar Shimrat
in the near future. Our ability to manage growth effectively will require us to continue to implement and improve our management
systems and to recruit and train new employees. Although we have done so in the past and expect to do so in the future, there can
be no assurance that we will be able to successfully attract and retain skilled and experienced personnel. We anticipate that in
the near future, other key personnel will enter into employment agreements with the Company on customary terms.
LEGAL PROCEEDINGS
We
are not involved in any pending legal proceeding or litigations and, to the best of our knowledge, no governmental authority is
contemplating any proceeding to which we are a party or to which any of our properties is subject, which would reasonably be likely
to have a material adverse effect on us.
MANAGEMENT
Name
|
|
Age
|
|
Title(s)
|
Yoram Drucker
|
|
48
|
|
Director (Executive Chairman)
|
Itamar Shimrat
|
|
54
|
|
Chief Executive Officer, Chief Financial Officer and Director
|
David Zolty
|
|
64
|
|
Director
|
Ben Friedman
|
|
55
|
|
Director
|
Dennis Brown
|
|
64
|
|
Director
|
Yoram Drucker
, a Director and Chairman
of our Board of Directors, is an Israeli entrepreneur who has previously been involved in the development of two successful cell
therapy technology firms. He was a founding member of the cell stem therapy company Brainstorm. He served as COO in 2004 and CEO
in 2005 and 2006. He was also among the founders of Pluristem (listed on the NASDAQ), also a cell therapy company, and was a Director
in 2004 and 2005. In 2007 he was a seed investor and VP Business Development in a renewable energy technology firm called Millennium
Electric TOU Ltd. Since March 2008 he was a Director of a private renewable energy company called Rainbow Energy, where he actively
served as CEO from then until November of 2011. From 1996 to 2003 he served as business and marketing consulting and campaign execution
in varied industries ranging from real estate development to insurance. He is an honors graduate of the Abudi College of Advertising
and Marketing.
Itamar Shimrat
, CEO, CFO and Director,
is a Canadian businessman and a founding member of Cell Source Israel. Since Cell Source Israel’s inception, Mr. Shimrat
served as a Director, Chief Financial Officer and, in October 2013, he was appointed Chief Executive Officer. Previously, Mr. Shimrat
served as an Executive Vice President at First International Bank of Israel from March, 2005 until April, 2008. Prior to 2008,
he served as a senior manager at McKinsey & Company’s Tel Aviv office after having being elected Partner at Mitchell
Madison Group and consulting for Bain & Co. Mr. Shimrat led major profit improvement programs for leading corporations ranging
from American Express and Barclays to El Al Airlines. He has been a Director of two private companies: Rainbow Energy Ltd., a company
in the renewable energy industry, and Step Up - Olim Madrega Ltd., a company in the wheelchair industry, and also was on the Allocations
Committee of Matan, a leading Israeli philanthropic organization. He holds an MBA with Distinction from the Ivey Business School
of the University of Western Ontario in Canada.
David Zolty
has been a Director
of Cell Source Israel since November, 2011 and of our Board of Directors since June 30, 2014, and is a Canadian businessman who
has owned and managed various Canadian enterprises since 1968. In the mid 1970’s David was one of the founders of TNT Appliances,
a coin laundry and appliance sales and service company, primarily serving the Canadian burgeoning multi-family apartment industry.
The company grew to be the second largest coin laundry in Canada and was sold in and about 2002. While owning and managing TNT,
David was also involved in many real estate acquisitions both through TNT and the Zolty family real estate portfolio. Upon David’s
father Morris Zlotys’ retirement, David took a larger role in the Zolty family business where David currently holds a 12%
ownership interest and has served in various roles therein for more than 5 years. David has received an honors BA and has done
his post graduate work at the University of Toronto in the field of Religious Studies. He is also involved in a number of local
charities and is a long standing board member of Camp Agudah Toronto, a children’s summer camp which have facilities at Port
Carling, Ontario.
Ben Friedman
, BBA, BGS, LLB, has
been a Director of Cell Source Israel since November, 2011 and of our Board of Directors since June 30, 2014, and is a Canadian
business executive with over 25 years’ experience in real estate and commerce. Since 1985, he has served as Owner and CEO
of Saucham Holdings Ltd., a private real estate holding and development company active throughout Canada. He is, and has been for
more than five years, a managing partner and Director of The Zolty Group, a private company specializing in the development and
ownership of high rise multi-unit residential buildings in Canada and the United States. He continues to act as Director of numerous
private business related enterprises in the high tech, medical, and laser technology fields, and is a Director of an array of non-profit
educational and vocational institutions.
Dr. Dennis M. Brown, PhD,
was
elected Director of the Company on June 30, 2014. Dr. Brown is a founder and Chief Scientific Officer and director of Del Mar Pharmaceuticals
(BC) Ltd. a subsidiary of DelMar Pharmaceuticals, Inc. (OTCQB: DMPI) to which he serves as a director and Chief Scientific Officer.
Dr. Brown has more than thirty years of drug discovery and development experience. He has served as Chairman of Mountain View Pharmaceutical's
Board of Directors since 2000 and is the President of Valent. In 1999 he founded ChemGenex Therapeutics, which merged with a publicly
traded Australian company in 2004 to become ChemGenex Pharmaceuticals (ASX: CXS/NASDAQ: CXSP), of which he served as President
and a Director until 2009. He was previously a co-founder of Matrix Pharmaceutical, Inc., where he served as Vice President (VP)
of Scientific Affairs from 1985-1995 and as VP, Discovery Research, from 1995-1999. He also previously served as an Assistant Professor
of Radiology at Harvard University Medical School and as a Research Associate in Radiology at Stanford University Medical School.
He received his B.A. in Biology and Chemistry (1971), M.S. in Cell Biology (1975) and Ph.D. in Radiation and Cancer Biology (1979),
all from New York University. Dr. Brown is an inventor of about 34 issued U.S. patents and applications, many with foreign counterparts.
Dr. Brown’s scientific knowledge and experience qualifies him to serve on our Board of Directors.
The Company’s
directors are elected at the annual meeting of shareholders to hold office until the annual meeting of shareholders for the ensuing
year or until their successors have been duly elected and qualified. Officers are elected annually by the Board of Directors and
serve at the discretion of the Board.
Board Leadership Structure and Role in Risk Oversight
Due to the small size
and early stage of the Company, we have not adopted a formal policy on whether the Chairman and Chief Executive Officer positions
should be separate or combined. Following Mr. Buckley’s resignation, Mr. Drucker will serve as the Chairman whereas Mr. Shimrat
will serve as the Chief Executive Officer.
Our Board of Directors
(“Board”) is primarily responsible for overseeing our risk management processes on behalf of the Company. The Board
receives and reviews periodic reports from management, auditors, legal counsel, and others, as considered appropriate regarding
our company’s assessment of risks. In addition, the Board focuses on the most significant risks facing our company and our
company’s general risk management strategy, and also ensures that risks undertaken by our Company are consistent with the
board’s appetite for risk. While the Board oversees our company’s risk management, management is responsible for day-to-day
risk management processes. We believe this division of responsibilities is the most effective approach for addressing the risks
facing our company and that our board leadership structure supports this approach.
Involvement in Certain Legal Proceedings
To our knowledge, our directors and executive
officers have not been involved in any of the following events during the past ten years:
|
1.
|
any bankruptcy petition filed by or against such person or any business of which such person was
a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
|
|
2.
|
any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding
traffic violations and other minor offenses);
|
|
3.
|
being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated,
of any court of competent jurisdiction, permanently or temporarily enjoining him from or otherwise limiting his involvement in
any type of business, securities or banking activities or to be associated with any person practicing in banking or securities
activities;
|
|
4.
|
being found by a court of competent jurisdiction in a civil action, the SEC or the Commodity Futures
Trading Commission to have violated a Federal or state securities or commodities law, and the judgment has not been reversed, suspended,
or vacated;
|
|
5.
|
being subject of, or a party to, any Federal or state judicial or administrative order, judgment
decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of any Federal or state securities
or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies, or any law or
regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
|
|
6.
|
being subject of or party to any sanction or order, not subsequently reversed, suspended, or vacated,
of any self-regulatory organization, any registered entity or any equivalent exchange, association, entity or organization that
has disciplinary authority over its members or persons associated with a member.
|
Code of Ethics
We have not adopted
a Code of Business Conduct and Ethics that applies to our principal executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions because of the small number of persons involved in the management
of the Company.
Nominating Committee
We have not adopted
any procedures by which security holders may recommend nominees to our Board of Directors.
Audit Committee
The Board of Directors
acts as the Audit Committee and the Board has no separate committees. The Company has no qualified financial expert at this time
because it has not been able to hire a qualified candidate. Further, the Company believes that it has inadequate financial resources
at this time to hire such an expert.
Executive Compensation
The following table
sets forth all compensation paid in respect of the Company’s principal executive officer (“PEO”) and the two
(2) most highly compensated executive officers other than the PEO who received compensation in excess of $100,000 per year for
2013 and 2012.
Summary Compensation Table
Name and
Principal
Position
|
|
Year
|
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards
($)
|
|
|
Non-Equity
Incentive Plan
Compensation
Earnings
($)
|
|
|
Non-Qualified
Deferred
Compensation
Earnings
($)
|
|
|
All Other
Compensation
($)
|
|
|
Total
($)
|
|
Itamar
|
|
|
2013
|
|
|
|
107,158
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
107,158
|
|
Shimrat, CEO
|
|
|
2012
|
|
|
|
66,328
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yoram
|
|
|
2013
|
|
|
|
107,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107,158
|
|
Drucker
|
|
|
2012
|
|
|
|
66,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,583
|
|
Outstanding Equity Awards at Fiscal Year-End
The Company had no
outstanding equity awards or equity compensation plan as of March 31, 2014.
Director Compensation
No director of TTSE
received any compensation for services as director for TTSE during fiscal year 2013. Additionally, no director of Cell Source Israel
has received compensation for services as a director.
Risk Management
The Company does not
believe risks arising from its compensation policies and practices for its employees are reasonably likely to have a material adverse
effect on the Company.
Compensation Committee Interlocks
and Insider Participation
Currently, the Board of Directors does not have any standing
audit, nominating or compensation committees, or committees performing similar functions. The directors collectively perform the
duties of an audit committee and nominating committee, which prior to the Share Exchange were performed by the Company’s
sole Director.
Certain Relationships and Related
Transactions
The Company maintains
an exclusive worldwide license to certain intellectual property of Yeda, the commercial arm of the Weizmann Institute, which currently
owns 1,159,972 shares of Company common stock and warrants to purchase 1,995,376 shares of Company common stock at $0.001 per share.
Dr. Reisner, who leads a team at the Weizmann Institute, holds 1,159,972 shares of Company common stock and warrants to purchase
48,459 shares of Company common stock at $0.001 per share. See the section entitled “Intellectual Property” in this
prospectus.
In September 2011
and in connection with securing the Yeda License Agreement, Cell Source Israel issued to Yeda and Dr. Reisner Ordinary Shares representing
26% of the then issued and outstanding CSL Ordinary Shares. Cell Source Israel also granted Yeda and Dr. Reisner anti-dilution
protections against dilution under 26% of the issued and outstanding CSL Ordinary Shares that would result from issuances pursuant
to any capital raises by Cell Source of up to $3,500,000. In connection with the aggregate $3,500,000 subsequently raised by Cell
Source Israel pursuant to the Loan Agreements (as defined below), the Note Exchange, the Bridge Exchange (as defined below) and
the Private Placement, Yeda and Dr. Reisner exercised their anti-dilution rights. Pursuant to this anti-dilution protection Yeda
and Dr. Riesner were entitled to issuances, in the form of any combination of CSL Ordinary Shares and warrants to purchase CSL
Ordinary Shares at par value, at their election. Accordingly, Cell Source Israel issued 239,142 CSL Ordinary Shares and warrants
to purchase 1,995,376 CSL Ordinary Shares at par value to Yeda and 807,314 CSL Ordinary Shares and warrants to purchase 48,459
CSL Ordinary Shares at par value to Dr. Reisner.
In December 2012 and
March 2013, a group of five accredited investors (“Note Investors”), including David Zolty, a director of Cell Source
Israel, Solomon Zolty, a director of Cell Source Israel and Phyllis Friedman, the wife of Cell Source Israel’s director Ben
Friedman, entered into Convertible Loan Agreements (“Loan Agreements”) pursuant to which the Note Investors loaned
Cell Source Israel an aggregate of $510,000 (“Loan Amount”). In accordance with the Loan Agreements, the Note Investors
were entitled to receive interest equal to 6% of the Loan Amount per annum and the Loan Amount was payable by Cell Source Israel
six (6) months after the receipt of the Loan Amount. In November 2013, the Note Investors elected to convert the Loan Amount into
CSL Ordinary Shares equal to 18% of Cell Source Israel’s fully-diluted issued and outstanding capital (“Note Exchange”),
which issuance did not dilute the Note Investors’ prior holdings. Accordingly, the Note Investors were issued 2,699,880 CSL
Ordinary Shares.
In October 2013, Cell
Source Israel and the Note Investors entered into a Bridge Funding Agreement pursuant to which the Note Investors paid $50,000
to Cell Source Israel in exchange for Cell Source Israel’s agreement to issue to the Note Investors an aggregate of 66,667
Ordinary Shares and a warrant to purchase 100,000 Ordinary Shares at an exercise price of $0.75 per share on or prior to the closing
of the Private Placement (the “Bridge Exchange”).
Director Independence
None of our directors
is independent as that term is defined under the Nasdaq Marketplace Rules.
Security Ownership of Certain Beneficial Owner and Management.
The following table
sets forth certain information, as of the date of filing of this prospectus, with respect to the beneficial ownership of the outstanding
Common Stock by (i) any holder of more than five (5%) percent; (ii) each of the Company’s executive officers and directors;
and (iii) the Company’s directors and executive officers as a group. Except as otherwise indicated, each of the stockholders
listed below has sole voting and investment power over the shares beneficially owned.
The address for each Beneficial Owner named
is the address of the Company’s principal executive office.
Name of Beneficial Owner
|
|
Number of Common
Stock
Beneficially Owned
|
|
|
Percentage of
Common Stock
Beneficially
Owned (1)
|
|
Directors and Officers:
|
|
|
|
|
|
|
|
|
Yoram Drucker, Director (Chairman)
|
|
|
575,004
|
|
|
|
2.46
|
%
|
Itamar Shimrat, Chief Executive Officer, Chief Financial Officer and Director
|
|
|
575,004
|
|
|
|
2.46
|
%
|
David Zolty, Director
|
|
|
1,095,818
|
|
|
|
4.69
|
%
|
Ben Friedman, Director (2)
|
|
|
4,383,344
|
|
|
|
18.78
|
%
|
Dennis Brown, Director
|
|
|
100,000
|
|
|
|
*
|
|
All directors and executive officers as a group (5 persons)
|
|
|
6,729,170
|
|
|
|
28.39
|
%
|
*less than 1%
|
(1)
|
Based on 23,345,923 shares issued and outstanding.
|
|
(2)
|
Mr. Friedman’s beneficial ownership includes shares beneficially owned by his wife, Phyllis
Friedman.
|
Indemnification of Directors and Officers
Neither our Articles
of Incorporation nor Bylaws prevent us from indemnifying our officers, directors and agents to the extent permitted under the Nevada
Revised Statute (“NRS”). NRS Section 78.7502 provides that a corporation shall indemnify any director, officer, employee
or agent of a corporation against expenses, including attorneys’ fees, actually and reasonably incurred by him in connection
with any the defense to the extent that a director, officer, employee or agent of a corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to NRS Section 78.7502(1) or 78.7502(2), or in defense of any
claim, issue or matter therein.
NRS Section 78.7502(1)
provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by
or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses, including attorneys’ fees, judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with the action, suit or proceeding if he: (a) is not liable
pursuant to NRS Section 78.138; or (b) acted in good faith and in a manner which he reasonably believed to be in or not opposed
to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful.
NRS Section 78.7502(2)
provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact
that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against
expenses, including amounts paid in settlement and attorneys’ fees actually and reasonably incurred by him in connection
with the defense or settlement of the action or suit if he: (a) is not liable pursuant to NRS Section 78.138; or (b) acted in good
faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation. Indemnification
may not be made for any claim, issue or matter as to which such a person has been adjudged by a court of competent jurisdiction,
after exhaustion of all appeals there from, to be liable to the corporation or for amounts paid in settlement to the corporation,
unless and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction determines
upon application that in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for
such expenses as the court deems proper.
NRS Section 78.747
provides that except as otherwise provided by specific statute, no director or officer of a corporation is individually liable
for a debt or liability of the corporation, unless the director or officer acts as the alter ego of the corporation. The court
as a matter of law must determine the question of whether a director or officer acts as the alter ego of a corporation.
Insofar as indemnification
for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to
the foregoing provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy
as expressed in the Securities Act and is therefore unenforceable. In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection
with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public policy
as expressed hereby in the Securities Act and we will be governed by the final adjudication of such issue.
DESCRIPTION
OF PROPERTY
The
Company's corporate headquarter is located at 65 Yigal Alon Street, 23rd Floor, Tel Aviv 67433, Israel, and the telephone number
at such address is (972) 3 562-1755. The Company’s U.S. contact information is: 57 W. 57th St., Suite 400 New York, NY 10019
and (646) 416-7896. We conduct research at the Weizmann Institute and plan to conduct clinical trials at the University of Würzburg
in Germany, as well as at University of Parma, Italy.
SELLING STOCKHOLDERS
The following table
details the name of each Selling Stockholder, the number of shares owned by such Selling Stockholders,
and the number of shares that may be offered by each Selling Stockholder for resale under this prospectus. The Selling Stockholders
may sell up to 9,618,648 shares of our Common Stock from time to time in one or more offerings under this prospectus, including
4,759,324 shares which are issuable upon the exercise of warrants held by certain Selling Stockholders. Because each Selling Stockholder
may offer all, some or none of the shares it holds, and because, based upon information provided to us, there are currently no
agreements, arrangements, or understandings with respect to the sale of any of the shares, no definitive estimate as to the number
of shares that will be held by each Selling Stockholder after the offering can be provided. The following table has been prepared
on the assumption that all shares offered under this prospectus will be sold to parties unaffiliated with the Selling Stockholders.
Each
of the transactions by which the Selling Stockholders acquired their securities from us was exempt under the registration provisions
of the Securities Act.
The
9,618,648 shares of Common Stock referred to above are being registered to permit public sales of the shares, and the Selling Stockholders
may offer the shares for resale from time to time pursuant to this prospectus. The Company shareholders may also sell, transfer
or otherwise dispose of all or a portion of their shares in transactions exempt from the registration requirements of the Securities
Act or pursuant to another effective registration statement covering those shares. We may from time to time include additional
Selling Stockholders in supplements or amendments to this prospectus.
To
the best of our knowledge, none of the Selling Stockholders is a broker dealer or an affiliate of a broker dealer other than as
described in the footnotes to the table below.
Beneficial
ownership is determined in accordance with the rules of the Securities and Exchange Commission. The Selling Stockholders’
percentage of ownership of our outstanding shares in the table below is based upon 23,345,923 shares of Common Stock outstanding
as of August 7, 2014.
|
|
Ownership Before Offering
|
|
|
Ownership After Offering (1)
|
|
Selling Stockholder
|
|
Number of Shares
of Common Stock
Beneficially Owned
|
|
|
Number of Shares
of Common Stock
Offered
|
|
|
Number of
Shares of
Common Stock
Beneficially
Owned
|
|
|
Percentage of
Common
Stock
Beneficially
Owned
|
|
Adam K. Stern (69)
|
|
|
133,332
|
(2)
|
|
|
133,332
|
(2)
|
|
|
0
|
|
|
|
0.00
|
%
|
Akita Capital, LLC (3)
|
|
|
240,666
|
(4)
|
|
|
240,666
|
(4)
|
|
|
0
|
|
|
|
0.00
|
%
|
Aton Select Funds Ltd (5)
|
|
|
720,000
|
(6)
|
|
|
720,000
|
(6)
|
|
|
0
|
|
|
|
0.00
|
%
|
B&C Scotti Family Trust (7)
|
|
|
133,334
|
(8)
|
|
|
133,334
|
(8)
|
|
|
0
|
|
|
|
0.00
|
%
|
Bull Hunter, Inc. (9)
|
|
|
346,666
|
(10)
|
|
|
346,666
|
(10)
|
|
|
0
|
|
|
|
0.00
|
%
|
Chris Mahne
|
|
|
66,666
|
(11)
|
|
|
66,666
|
(11)
|
|
|
0
|
|
|
|
0.00
|
%
|
CR Financial Holdings, Inc. (12)(69)
|
|
|
53,334
|
(13)
|
|
|
53,334
|
(13)
|
|
|
0
|
|
|
|
0.00
|
%
|
Craig Fielder
|
|
|
100,000
|
(14)
|
|
|
100,000
|
(14)
|
|
|
0
|
|
|
|
0.00
|
%
|
Daniel Garofalo
|
|
|
66,666
|
(15)
|
|
|
66,666
|
(15)
|
|
|
0
|
|
|
|
0.00
|
%
|
Daniel J. Witanek
|
|
|
26,666
|
(16)
|
|
|
26,666
|
(16)
|
|
|
0
|
|
|
|
0.00
|
%
|
David Barry
|
|
|
26,666
|
(17)
|
|
|
26,666
|
(17)
|
|
|
0
|
|
|
|
0.00
|
%
|
Deepak H. Aggarwal
|
|
|
140,000
|
(18)
|
|
|
140,000
|
(18)
|
|
|
0
|
|
|
|
0.00
|
%
|
Dennis M. Brown
|
|
|
200,000
|
(19)
|
|
|
200,000
|
(19)
|
|
|
0
|
|
|
|
0.00
|
%
|
Donald G. Bahouth
|
|
|
200,000
|
(20)
|
|
|
200,000
|
(20)
|
|
|
0
|
|
|
|
0.00
|
%
|
Emanuel Nisan
|
|
|
14,000
|
(21)
|
|
|
14,000
|
(21)
|
|
|
0
|
|
|
|
0.00
|
%
|
Empire Stock Transfer, Inc. (22)
|
|
|
66,666
|
(23)
|
|
|
66,666
|
(23)
|
|
|
0
|
|
|
|
0.00
|
%
|
Firerock Global Opportunities Fund, L.P. (24)
|
|
|
791,666
|
(25)
|
|
|
666,666
|
(25)
|
|
|
125,000
|
|
|
|
0.54
|
%
|
Fred Weiss Nancy Weiss
|
|
|
165,000
|
(26)
|
|
|
120,000
|
(26)
|
|
|
45,000
|
|
|
|
0.19
|
%
|
GRQ Consultants, Inc. 401 K FBO Barry Honig (27)
|
|
|
908,768
|
(28)
|
|
|
381,068
|
(28)
|
|
|
527,700
|
|
|
|
2.26
|
%
|
Howard K. Fuguet
|
|
|
533,332
|
(29)
|
|
|
533,332
|
(29)
|
|
|
0
|
|
|
|
0.00
|
%
|
Ikona Global Partners (30)
|
|
|
266,666
|
(31)
|
|
|
266,666
|
(31)
|
|
|
0
|
|
|
|
0.00
|
%
|
Jeffrey K. Greene
|
|
|
28,000
|
(32)
|
|
|
28,000
|
(32)
|
|
|
0
|
|
|
|
0.00
|
%
|
Jennifer Lorenzo
|
|
|
40,000
|
(33)
|
|
|
40,000
|
(33)
|
|
|
0
|
|
|
|
0.00
|
%
|
Jerry S. Browner
|
|
|
26,666
|
(34)
|
|
|
26,666
|
(34)
|
|
|
0
|
|
|
|
0.00
|
%
|
Jill Strauss
|
|
|
66,000
|
(35)
|
|
|
48,000
|
(35)
|
|
|
18,000
|
|
|
|
0.08
|
%
|
John C. Leo (69)
|
|
|
140,000
|
(36)
|
|
|
140,000
|
(36)
|
|
|
0
|
|
|
|
0.00
|
%
|
John Chambers (69)
|
|
|
26,666
|
(37)
|
|
|
26,666
|
(37)
|
|
|
0
|
|
|
|
0.00
|
%
|
Josephine Viglione
|
|
|
20,000
|
(38)
|
|
|
20,000
|
(38)
|
|
|
0
|
|
|
|
0.00
|
%
|
Keith A. Goodman
|
|
|
66,666
|
(39)
|
|
|
66,666
|
(39)
|
|
|
0
|
|
|
|
0.00
|
%
|
Lawrence Neil Grossbard
|
|
|
333,334
|
(40)
|
|
|
333,334
|
(40)
|
|
|
0
|
|
|
|
0.00
|
%
|
Mark Edward Gaetz
|
|
|
53,334
|
(41)
|
|
|
53,334
|
(41)
|
|
|
0
|
|
|
|
0.00
|
%
|
Michael Bonevento
|
|
|
66,666
|
(42)
|
|
|
66,666
|
(42)
|
|
|
0
|
|
|
|
0.00
|
%
|
Michael Chill (69)
|
|
|
26,666
|
(43)
|
|
|
26,666
|
(43)
|
|
|
0
|
|
|
|
0.00
|
%
|
Michael Leiter
|
|
|
150,000
|
(44)
|
|
|
150,000
|
(44)
|
|
|
0
|
|
|
|
0.00
|
%
|
Michael Margolis (69)
|
|
|
26,666
|
(45)
|
|
|
26,666
|
(45)
|
|
|
0
|
|
|
|
0.00
|
%
|
Michael Ravallo
|
|
|
136,000
|
(46)
|
|
|
136,000
|
(46)
|
|
|
0
|
|
|
|
0.00
|
%
|
Omnibus SA (47)
|
|
|
266,660
|
(48)
|
|
|
266,660
|
(48)
|
|
|
0
|
|
|
|
0.00
|
%
|
Phillip J. Lifschitz
|
|
|
133,332
|
(49)
|
|
|
133,332
|
(49)
|
|
|
0
|
|
|
|
0.00
|
%
|
Raymond Coppede
|
|
|
66,000
|
(50)
|
|
|
66,000
|
(50)
|
|
|
0
|
|
|
|
0.00
|
%
|
Renald J. Anelle
|
|
|
66,666
|
(51)
|
|
|
66,666
|
(51)
|
|
|
0
|
|
|
|
0.00
|
%
|
Richard S. Grossbard
|
|
|
333,334
|
(52)
|
|
|
333,334
|
(52)
|
|
|
0
|
|
|
|
0.00
|
%
|
Robert D. Crocitto
|
|
|
54,000
|
(53)
|
|
|
54,000
|
(53)
|
|
|
0
|
|
|
|
0.00
|
%
|
Robert Freedman
|
|
|
266,666
|
(54)
|
|
|
266,666
|
(54)
|
|
|
0
|
|
|
|
0.00
|
%
|
Robert M. Newsome
|
|
|
140,000
|
(55)
|
|
|
140,000
|
(55)
|
|
|
0
|
|
|
|
0.00
|
%
|
Samuel Nussbaum
|
|
|
400,000
|
(56)
|
|
|
400,000
|
(56)
|
|
|
0
|
|
|
|
0.00
|
%
|
Sandor Capital Master Fund (57)
|
|
|
510,000
|
(58)
|
|
|
340,000
|
(58)
|
|
|
170,000
|
|
|
|
0.73
|
%
|
Sichenzia Ross Friedman Ference LLP (59)
|
|
|
100,000
|
(60)
|
|
|
100,000
|
(60)
|
|
|
0
|
|
|
|
0.00
|
%
|
Stephen M. Payne
|
|
|
800,000
|
(61)
|
|
|
800,000
|
(61)
|
|
|
0
|
|
|
|
0.00
|
%
|
Suntime Enterprises Ltd. (62)
|
|
|
666,666
|
(63)
|
|
|
666,666
|
(63)
|
|
|
0
|
|
|
|
0.00
|
%
|
Suzanne Adams
|
|
|
134,200
|
(64)
|
|
|
97,600
|
(64)
|
|
|
36,600
|
|
|
|
0.16
|
%
|
Vantage IRA FBO Jerrold Karnell (65)
|
|
|
66,666
|
(66)
|
|
|
66,666
|
(66)
|
|
|
0
|
|
|
|
0.00
|
%
|
Viswanathan Ramamurthy Reddy
|
|
|
30,000
|
(67)
|
|
|
30,000
|
(67)
|
|
|
0
|
|
|
|
0.00
|
%
|
William R. Lefever
|
|
|
100,000
|
(68)
|
|
|
100,000
|
(68)
|
|
|
0
|
|
|
|
0.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL:
|
|
|
10,540,948
|
|
|
|
9,618,648
|
|
|
|
922,300
|
|
|
|
|
|
|
(1)
|
R
epresents the amount of shares that will be held by the
selling stockholders after completion of this offering based on the assumptions that (a) all shares registered for sale by the
registration statement of which this prospectus is part will be sold and (b) that no other shares of our Common Stock beneficially
owned by the selling stockholders are acquired or are sold prior to completion of this offering by the selling stockholders.
|
|
(2)
|
Includes 66,666 shares of common stock and 66,666 shares of common stock issuable upon the exercise
of an outstanding warrant.
|
|
(3)
|
Gary Gotto holds voting and dispositive power over shares held by Akita Capital, LLC.
|
|
(4)
|
Includes 120,333 shares of common stock and 120,333 shares of common stock issuable upon the exercise
of an outstanding warrant.
|
|
(5)
|
David Dane holds voting and dispositive power over shares held by Aton Select Funds Ltd.
|
|
(6)
|
Includes 360,000 shares of common stock and 360,000 shares of common stock issuable upon the exercise
of an outstanding warrant.
|
|
(7)
|
Benjamin J. Scotti holds voting and dispositive power over shares held by B&C Scotti 1998 Family
Trust.
|
|
(8)
|
Includes 66,667 shares of common stock and 66,667 shares of common stock issuable upon the exercise
of an outstanding warrant.
|
|
(9)
|
Mark Groussman holds voting and dispositive power over shares held by Bull Hunter, Inc.
|
|
(10)
|
Includes 173,333 shares of common stock and 173,333 shares of common stock issuable upon the exercise
of an outstanding warrant.
|
|
(11)
|
Includes 33,333 shares of common stock and 33,333 shares of common stock issuable upon the exercise
of an outstanding warrant.
|
|
(12)
|
Donald Skrdlant holds voting and dispositive power over shares held by CR Financial Holdings, Inc.
|
|
(13)
|
Includes 26,667 shares of common stock and 26,667 shares of common stock issuable upon the exercise
of an outstanding warrant.
|
|
(14)
|
Includes 50,000 shares of common stock and 50,000 shares of common stock issuable upon the exercise
of an outstanding warrant.
|
|
(15)
|
Includes 33,333 shares of common stock and 33,333 shares of common stock issuable upon the exercise
of an outstanding warrant.
|
|
(16)
|
Includes 13,333 shares of common stock and 13,333 shares of common stock issuable upon the exercise
of an outstanding warrant.
|
|
(17)
|
Includes 13,333 shares of common stock and 13,333 shares of common stock issuable upon the exercise
of an outstanding warrant.
|
|
(18)
|
Includes 70,000 shares of common stock and 70,000 shares of common stock issuable upon the exercise
of an outstanding warrant.
|
|
(19)
|
Includes 100,000 shares of common stock and 100,000 shares of common stock issuable upon the exercise
of an outstanding warrant.
|
|
(20)
|
Includes 100,000 shares of common stock and 100,000 shares of common stock issuable upon the exercise
of an outstanding warrant.
|
|
(21)
|
Includes 7,000 shares of common stock and 7,000 shares of common stock issuable upon the exercise
of an outstanding warrant.
|
|
(22)
|
Patrick Mokros holds voting and dispositive power over shares held by Empire Stock Transfer Inc.
|
|
(23)
|
Includes 33,333 shares of common stock and 33,333 shares of common stock issuable upon the exercise
of an outstanding warrant.
|
|
(24)
|
Seth Fireman holds voting and dispositive power over shares held by Firerock Global Opportunities
Fund, L.P.
|
|
(25)
|
Includes 458,333 shares of common stock and 333,333 shares of common stock issuable upon the exercise
of an outstanding warrant.
|
|
(26)
|
Includes 105,000 shares of common stock and 60,000 shares of common stock issuable upon the exercise
of an outstanding warrant.
|
|
(27)
|
Barry Honig holds voting and dispositive power over shares held by GRQ Consultants, Inc. 401K FBO
Barry Honig.
|
|
(28)
|
Includes 718,234 shares of common stock and 190,534 shares of common stock issuable upon the exercise
of an outstanding warrant.
|
|
(29)
|
Includes 266,666 shares of common stock and 266,666 shares of common stock issuable upon the exercise
of an outstanding warrant.
|
|
(30)
|
Richard Calta holds voting and dispositive power over shares held by Ikona Global Partners.
|
|
(31)
|
Includes 133,333 shares of common stock and 133,333 shares of common stock issuable upon the exercise
of an outstanding warrant.
|
|
(32)
|
Includes 14,000 shares of common stock and 14,000 shares of common stock issuable upon the exercise
of an outstanding warrant.
|
|
(33)
|
Includes 20,000 shares of common stock and 20,000 shares of common stock issuable upon the exercise
of an outstanding warrant.
|
|
(34)
|
Includes 13,333 shares of common stock and 13,333 shares of common stock issuable upon the exercise
of an outstanding warrant.
|
|
(35)
|
Includes 42,000 shares of common stock and 24,000 shares of common stock issuable upon the exercise
of an outstanding warrant.
|
|
(36)
|
Includes 70,000 shares of common stock and 70,000 shares of common stock issuable upon the exercise
of an outstanding warrant.
|
|
(37)
|
Includes 13,333 shares of common stock and 13,333 shares of common stock issuable upon the exercise
of an outstanding warrant.
|
|
(38)
|
Includes 10,000 shares of common stock and 10,000 shares of common stock issuable upon the exercise
of an outstanding warrant.
|
|
(39)
|
Includes 33,333 shares of common stock and 33,333 shares of common stock issuable upon the exercise
of an outstanding warrant.
|
|
(40)
|
Includes 166,667 shares of common stock and 166,667 shares of common stock issuable upon the exercise
of an outstanding warrant.
|
|
(41)
|
Includes 26,667 shares of common stock and 26,667 shares of common stock issuable upon the exercise
of an outstanding warrant.
|
|
(42)
|
Includes 33,333 shares of common stock and 33,333 shares of common stock issuable upon the exercise
of an outstanding warrant.
|
|
(43)
|
Includes 13,333 shares of common stock and 13,333 shares of common stock issuable upon the exercise
of an outstanding warrant.
|
|
(44)
|
Includes 75,000 shares of common stock and 75,000 shares of common stock issuable upon the exercise
of an outstanding warrant.
|
|
(45)
|
Includes 13,333 shares of common stock and 13,333 shares of common stock issuable upon the exercise
of an outstanding warrant.
|
|
(46)
|
Includes 68,000 shares of common stock and 68,000 shares of common stock issuable upon the exercise
of an outstanding warrant.
|
|
(47)
|
Kenneth Ciapala holds voting and dispositive power over shares held by Omnibus S.A.
|
|
(48)
|
Includes 133,330 shares of common stock and 133,330 shares of common stock issuable upon the exercise
of an outstanding warrant.
|
|
(49)
|
Includes 66,666 shares of common stock and 66,666 shares of common stock issuable upon the exercise
of an outstanding warrant.
|
|
(50)
|
Includes 33,000 shares of common stock and 33,000 shares of common stock issuable upon the exercise
of an outstanding warrant.
|
|
(51)
|
Includes 33,333 shares of common stock and 33,333 shares of common stock issuable upon the exercise
of an outstanding warrant.
|
|
(52)
|
Includes 166,667 shares of common stock and 166,667 shares of common stock issuable upon the exercise
of an outstanding warrant.
|
|
(53)
|
Includes 27,000 shares of common stock and 27,000 shares of common stock issuable upon the exercise
of an outstanding warrant.
|
|
(54)
|
Includes 133,333 shares of common stock and 133,333 shares of common stock issuable upon the exercise
of an outstanding warrant.
|
|
(55)
|
Includes 70,000 shares of common stock and 70,000 shares of common stock issuable upon the exercise
of an outstanding warrant.
|
|
(56)
|
Includes 200,000 shares of common stock and 200,000 shares of common stock issuable upon the exercise
of an outstanding warrant.
|
|
(57)
|
Richard Lemak holds voting and dispositive power over shares held by Sandor Capital Master Fund.
|
|
(58)
|
Includes 340,000 shares of common stock and 170,000 shares of common stock issuable upon the exercise
of an outstanding warrant.
|
|
(59)
|
Gregory Sichenzia, Marc J. Ross, Richard A. Friedman, Michael
Ference, Thomas A. Rose, Jeffrey Fessler, Harvey Kesner, Benjamin Tan, Andrea Cataneo and Darrin M. Ocasio have shared voting and
dispositive power over the shares of Common Stock held by Sichenzia Ross Friedman Ference LLP.
|
|
(60)
|
Includes 100,000 shares of common stock issued to Sichenzia Ross Friedman Ference LLP for legal
services provided to the Company.
|
|
(61)
|
Includes 400,000 shares of common stock and 400,000 shares of common stock issuable upon the exercise
of an outstanding warrant.
|
|
(62)
|
Lian Wang holds voting and dispositive power over shares held by Suntime Enterprises Ltd.
|
|
(63)
|
Includes 333,333 shares of common stock and 333,333 shares of common stock issuable upon the exercise
of an outstanding warrant.
|
|
(64)
|
Includes 85,400 shares of common stock and 48,800 shares of common stock issuable upon the exercise
of an outstanding warrant.
|
|
(65)
|
Jerrold Karnell
holds voting and dispositive power over shares held by Vantage IRA FBO Jerrold
Karnell.
|
|
(66)
|
Includes 33,333 shares of common stock and 33,333 shares of common stock issuable upon the exercise
of an outstanding warrant.
|
|
(67)
|
Includes 15,000 shares of common stock and 15,000 shares of common stock issuable upon the exercise
of an outstanding warrant.
|
|
(68)
|
Includes 50,000 shares of common stock and 50,000 shares of common stock issuable upon the exercise
of an outstanding warrant.
|
|
(69)
|
The selling stockholder or
the individual deemed to hold voting and dispositive power over the selling stockholder is an affiliate of a broker-dealer. The
selling stockholder acquired the securities in the ordinary course of business and at the time of such acquisition, did not have
any agreements, plans or understandings, directly or indirectly, with any person to distribute the securities.
|
Description of Registrant’s
Securities to be Registered.
The Company’s
authorized capital stock of 210,000,000 consists of (i) 200,000,000 shares of common stock, par value $0.001 and (ii) 10,000,000
shares of preferred stock, par value $0.001. As of the date of the filing of this prospectus, there are 23,345,923 shares of the
Company’s common stock issued and outstanding.
The holders of common
stock are entitled to one non-cumulative vote for each share held on all matters submitted to a vote of shareholders. Holders of
common stock are entitled to receive ratably such dividends, if any, as may be declared by the Board of Directors out of funds
legally available. Upon a liquidation, dissolution or winding up the Company, the holders of common stock are entitled to receive
ratably the net assets available after the payment of all debts and other liabilities, and subject further only to the prior rights
of any outstanding preferred stock.
The holders of common stock have no preemptive, subscription,
redemption or sinking fund conversion rights. Holders of shares of our common stock do not have cumulative voting rights, which
means that the holders of more than 50% of the outstanding shares, voting for the election of directors, can elect all of the directors
to be elected, if they so choose, and, in that event, the holders of the remaining shares will not be able to elect any of our
directors.
Plan of Distribution
The
Selling Stockholders, which, as used herein, includes donees, pledgees, transferees or other successors-in-interest selling shares
of Common Stock received after the date of this prospectus from a Selling Stockholder as a gift, pledge, partnership distribution
or other transfer, may, from time to time, sell, transfer or otherwise dispose of any or all of their shares of Common Stock on
any stock exchange, market or trading facility on which the shares are traded or in private transactions. These dispositions may
be at fixed prices, at prevailing market prices at the time of sale, at prices related to the prevailing market price, at varying
prices determined at the time of sale, or at negotiated prices. We have not been advised of any arrangements by the Selling Stockholders
for the sale of any of the Common Stock owned by them.
The Selling Stockholders
may use any one or more of the following methods when disposing of shares or interests therein:
|
•
|
ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
|
|
•
|
block trades in which the broker-dealer will attempt to sell the shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction;
|
|
•
|
crosses, where the same broker acts as an agent on both sides of the trade;
|
|
•
|
purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
|
|
•
|
an exchange distribution in accordance with the rules of the applicable exchange;
|
|
•
|
privately negotiated transactions;
|
|
•
|
through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;
|
|
•
|
broker-dealers may agree with the Selling Stockholders to sell a specified number of such shares at a stipulated price per share;
|
|
•
|
a combination of any such methods of sale; and
|
|
•
|
any other method permitted pursuant to applicable law.
|
The
Selling Stockholders may, from time to time, pledge or grant a security interest in some or all of the shares of Common Stock owned
by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell
the shares of Common Stock, from time to time, under this prospectus, or under an amendment to this prospectus under Rule 424(b)(3)
or other applicable provision of the Securities Act amending the list of Selling Stockholders to include the pledgee, transferee
or other successors in interest as Selling Stockholders under this prospectus. The Selling Stockholders also may transfer the shares
of Common Stock in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling
beneficial owners for purposes of this prospectus; provided, however, that prior to any such transfer the following information
(or such other information as may be required by the federal securities laws from time to time) with respect to each such selling
beneficial owner must be added to the prospectus by way of a prospectus supplement or post-effective amendment, as appropriate:
(1) the name of the selling beneficial owner; (2) any material relationship the selling beneficial owner has had within
the past three years with us or any of our predecessors or affiliates; (3) the amount of securities of the class owned by
such security beneficial owner before the transfer; (4) the amount to be offered for the security beneficial owner’s
account; and (5) the amount and (if one percent or more) the percentage of the class to be owned by such security beneficial
owner after the transfer is complete.
Any
Selling Stockholder and any other person participating in a distribution will be subject to applicable provisions of the Exchange
Act and the rules and regulations under that statute, including, without limitation, possibly Regulation M. This may limit the
timing of purchases and sales of any of the securities by a Selling Stockholder and any other participating person. Regulation
M may also restrict the ability of any person engaged in the distribution of the securities to engage in market-making activities
with respect to the securities. All of the foregoing may affect the marketability of the securities and the ability of any person
or entity to engage in market-making activities with respect to the securities.
We
are required to pay all fees and expenses incident to the registration of the shares, including fees and disbursements of counsel
to the Selling Stockholder, but excluding brokerage commissions or underwriter discounts.
The
Selling Stockholders, alternatively, may sell all or any part of the shares offered in this prospectus through an underwriter.
No Selling Stockholder has entered into any agreement with a prospective underwriter and there is no assurance that any such agreement
will be entered into.
A
Selling Stockholder may pledge its shares to their brokers under the margin provisions of customer agreements. If a Selling Stockholder
defaults on a margin loan, the broker may, from time to time, offer and sell the pledged shares.
If
the Selling Stockholder notifies us that it has a material arrangement with a broker-dealer for the resale of the Common Stock,
then we would be required to amend the registration statement of which this prospectus is a part, and file a prospectus supplement
to describe the agreements between the Selling Stockholder and the broker-dealer.
LEGAL MATTERS
Sichenzia
Ross Friedman Ference LLP, New York, New York, will pass upon the validity of the shares of Common Stock
offered
by the Selling Stockholders
under this prospectus. Sichenzia Ross Friedman Ference LLP is the beneficial holder of 100,000
shares of Common Stock, which shares are being registered pursuant to this prospectus.
EXPERTS
The
balance sheets of Cell Source Ltd. as of December 31, 2013 and December 31, 2012 and the related statements of
operations, changes in stockholders’ deficiency, and cash flows included in this registration
statement on Form S-1 have been so included in reliance on the report of Marcum LLP, an independent registered public
accounting firm, given upon their authority as experts in accounting and auditing.
WHERE YOU
CAN FIND ADDITIONAL INFORMATION
We
have filed with the Securities and Exchange Commission a registration statement on Form S-1, together with any amendments and related
exhibits, under the Securities Act, with respect to our shares of Common Stock offered by this prospectus. The registration statement
contains additional information about us and our shares of Common Stock that the Selling Stockholders are offering in this prospectus.
We file
annual, quarterly and current reports and other information with the Securities and Exchange Commission under the Securities Exchange
Act. Our Securities and Exchange Commission filings are available to the public over the Internet at the Securities and Exchange
Commission’s website at http://www.sec.gov. Access to these electronic filings is available as soon as practicable after
filing with the Securities and Exchange Commission. You may also read and copy any document we file at the Securities and Exchange
Commission’s public reference room located at 100 F Street, N.E., Washington, D.C. 20549. Please call the Securities and
Exchange Commission at 1-800-SEC-0330 for further information on the public reference rooms and their copy charges.
CELL SOURCE
LIMITED
FINANCIAL STATEMENTS
CONTENTS
FOR THE YEARS ENDED DECEMBER 31, 2013
AND 2012
FOR THE THREE MONTHS ENDED MARCH 31,
2014 AND 2013
CELL SOURCE LIMITED
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2013
AND 2012
CELL SOURCE LIMITED
|
|
CONTENTS
|
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
of Cell Source Limited
We have audited the accompanying balance
sheets of Cell Source Limited (the “Company”) as of December 31, 2013 and 2012 and the statements of operations, stockholders’
deficit and cash flows for the years ended December 31, 2013 and 2012. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.
The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.
Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements
referred to above present fairly, in all material respects, the financial position of Cell Source Limited, as of December 31,
2013 and 2012, and the results of its operations and its cash flows for the years ended December 31, 2013 and 2012 in conformity
with accounting principles generally accepted in the United States of America.
The accompanying financial statements
have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements,
the Company has had recurring losses, and has a working capital and stockholders' deficit as of December 31, 2013 and 2012. These
conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
/s/ Marcum LLP
Marcum LLP
New York, NY
|
|
July 1, 2014
|
|
CELL SOURCE
LIMITED
|
|
BALANCE SHEETS
|
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
28,878
|
|
|
$
|
161,323
|
|
|
|
|
|
|
|
|
|
|
Other Assets
|
|
|
63,337
|
|
|
|
35,832
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
92,215
|
|
|
$
|
197,155
|
|
The accompanying notes are an integral
part of these financial statements.
CELL SOURCE LIMITED
|
|
BALANCE SHEETS
|
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
558,349
|
|
|
$
|
48,177
|
|
Derivative liabilities
|
|
|
231,200
|
|
|
|
38,300
|
|
Covertible notes net of debt
discount of $— and $43,167 at December 31, 2013 and 2012, respectively
|
|
|
—
|
|
|
|
258,039
|
|
|
|
|
|
|
|
|
|
|
Total Current
Liabilities
|
|
|
789,549
|
|
|
|
344,516
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Deficit
|
|
|
|
|
|
|
|
|
Common shares of $0.01 par value:
|
|
|
|
|
|
|
|
|
50,000,000 shares authorized; 14,155,190 and 12,763,818 shares issued and
outstanding at December 31, 2013 and 2012, respectively
|
|
|
141,552
|
|
|
|
127,637
|
|
Additional paid-in capital
|
|
|
3,102,125
|
|
|
|
1,882,363
|
|
Accumulated deficit
|
|
|
(3,941,011
|
)
|
|
|
(2,157,361
|
)
|
|
|
|
|
|
|
|
|
|
Total Stockholders’
Deficit
|
|
|
(697,334
|
)
|
|
|
(147,361
|
)
|
|
|
|
|
|
|
|
|
|
Total Liabilities
and Stockholders’ Deficit
|
|
$
|
92,215
|
|
|
$
|
197,155
|
|
The accompanying notes are an integral
part of these financial statements.
CELL SOURCE
LIMITED
|
|
STATEMENTS OF OPERATIONS
|
|
|
For the Years Ended
|
|
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
(1,135,513
|
)
|
|
|
(1,219,515
|
)
|
General and administrative
|
|
|
(319,857
|
)
|
|
|
(447,264
|
)
|
|
|
|
|
|
|
|
|
|
Total Operating
Expenses
|
|
|
(1,455,370
|
)
|
|
|
(1,666,779
|
)
|
|
|
|
|
|
|
|
|
|
Operating Loss
|
|
|
(1,455,370
|
)
|
|
|
(1,666,779
|
)
|
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
|
(681,780
|
)
|
|
|
(8,633
|
)
|
|
|
|
|
|
|
|
|
|
Change in Fair
Value of Derivative Liability
|
|
|
353,500
|
|
|
|
13,500
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(1,783,650
|
)
|
|
$
|
(1,661,912
|
)
|
|
|
|
|
|
|
|
|
|
Loss Per
Share - Basic and Diluted
|
|
$
|
(0.14
|
)
|
|
$
|
(0.14
|
)
|
|
|
|
|
|
|
|
|
|
Weighted Average Number of
Shares Outstanding
|
|
|
13,168,636
|
|
|
|
12,067,243
|
|
The accompanying notes are an integral
part of these financial statements.
CELL
SOURCE LIMITED
|
|
STATEMENTS OF STOCKHOLDERS' DEFICIT
|
|
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance -
January 1, 2012
|
|
|
10,513,818
|
|
|
|
105,137
|
|
|
|
1,094,863
|
|
|
|
(495,449
|
)
|
|
|
704,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock
for cash
|
|
|
2,250,000
|
|
|
|
22,500
|
|
|
|
787,500
|
|
|
|
—
|
|
|
|
810,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,661,912
|
)
|
|
|
(1,661,912
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
|
12,763,818
|
|
|
|
127,637
|
|
|
|
1,882,363
|
|
|
|
(2,157,361
|
)
|
|
|
(147,361
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock
and warrants for cash
|
|
|
735,327
|
|
|
|
7,354
|
|
|
|
544,143
|
|
|
|
—
|
|
|
|
551,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of detachable
warrants to derivative liability
|
|
|
—
|
|
|
|
—
|
|
|
|
(231,200
|
)
|
|
|
—
|
|
|
|
(231,200
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock
for settlement of convertible notes
|
|
|
2,699,880
|
|
|
$
|
26,999
|
|
|
$
|
794,091
|
|
|
$
|
—
|
|
|
$
|
821,090
|
|
The accompanying notes are an integral
part of these financial statements.
CELL SOURCE LIMITED
|
|
STATEMENTS OF STOCKHOLDERS' DEFICIT (CONTINUED)
|
|
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
during the
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Development
|
|
|
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stage
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2012 (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution of services by officers
for no consideration
|
|
|
—
|
|
|
|
—
|
|
|
|
76,990
|
|
|
|
—
|
|
|
|
76,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange of common stock for warrants to founders
|
|
|
(2,043,835
|
)
|
|
|
(20,438
|
)
|
|
|
20,438
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forgiveness of accrued interest
|
|
|
—
|
|
|
|
—
|
|
|
|
15,300
|
|
|
|
—
|
|
|
|
15,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,783,650
|
)
|
|
|
(1,783,650
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2013
|
|
|
14,155,190
|
|
|
$
|
141,552
|
|
|
$
|
3,102,125
|
|
|
$
|
(3,941,011
|
)
|
|
$
|
(697,334
|
)
|
The accompanying notes are an integral
part of these financial statements.
CELL
SOURCE LIMITED
|
|
STATEMENTS OF CASH FLOWS
|
|
|
For the Years Ended
|
|
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,783,650
|
)
|
|
$
|
(1,661,912
|
)
|
Adjustments to reconcile net loss to net cash used
in operating activities:
|
|
|
|
|
|
|
|
|
Contribution of services by officers
|
|
|
76,990
|
|
|
|
—
|
|
Forgiveness of accrued interest
|
|
|
15,300
|
|
|
|
—
|
|
Accretion of debt discount
|
|
|
358,367
|
|
|
|
8,633
|
|
Change in fair value of derivative liability
|
|
|
(353,500
|
)
|
|
|
(13,500
|
)
|
Interest expense
|
|
|
309,885
|
|
|
|
—
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
(Increase) decrease in other assets
|
|
|
(27,505
|
)
|
|
|
82,188
|
|
Increase in accrued expenses
and other liabilities
|
|
|
510,171
|
|
|
|
49,383
|
|
|
|
|
|
|
|
|
|
|
Total Adjustments
|
|
|
889,708
|
|
|
|
126,704
|
|
|
|
|
|
|
|
|
|
|
Net Cash Used
in Operating Activities
|
|
|
(893,942
|
)
|
|
|
(1,535,208
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
Proceeds from issuance of convertible loan
|
|
|
210,000
|
|
|
|
300,000
|
|
Proceeds from issuance of common
stock and warrants, net
|
|
|
551,497
|
|
|
|
810,000
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided
by Financing Activities
|
|
|
761,497
|
|
|
|
1,110,000
|
|
|
|
|
|
|
|
|
|
|
(Decrease) Increase in Cash
|
|
|
(132,445
|
)
|
|
|
(425,208
|
)
|
|
|
|
|
|
|
|
|
|
Cash - Beginning
of year
|
|
|
161,323
|
|
|
|
586,531
|
|
|
|
|
|
|
|
|
|
|
Cash - End
of year
|
|
$
|
28,878
|
|
|
$
|
161,323
|
|
The accompanying notes are an integral
part of these financial statements.
CELL SOURCE LIMITED
|
|
STATEMENTS OF CASH FLOWS (CONTINUED)
|
|
|
For the Years Ended
|
|
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
Supplemental Disclosures of Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest expense
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for settlement of debt
|
|
$
|
511,206
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Reclassification of warrants to derivative liability
|
|
$
|
231,200
|
|
|
$
|
—
|
|
The accompanying notes are an integral
part of these financial statements.
CELL SOURCE
LIMITED
|
|
NOTES TO FINANCIAL STATEMENTS
|
|
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
|
|
Note
1 - Organization and Nature of Business
Cell Source Limited ("the
Company") was incorporated on September 15, 2011 under the General Corporation Law of Israel to engage in the research and
development of cell therapy treatments and a new source of human organs based on research performed at the Weizman Institute of
Science in Israel. The Company’s operations and corporate headquarters are located in Israel.
Note
2 - Going Concern
The Company has not generated
any revenues since its inception, has recurring net losses, and a working capital deficit as of December 31, 2013 and 2012 of
approximately $761,000 and $183,200, respectively, and used cash in operations of approximately $894,000 and $1,535,000 for the
years ended December 31, 2013 and 2012, respectively. In addition, the Company has an accumulated deficit from inception of approximately
$3,941,000. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
The financial statements have
been prepared on the going concern basis, which assumes the realization of assets and liquidation of liabilities in the normal
course of operations. The ability of the Company to continue its operations is dependent on management’s plans, which include
the raising of capital through debt and/or equity markets with some additional funding from other traditional financing sources,
including term notes, until such time that funds provided by operations are sufficient to fund working capital requirements. The
Company may need to incur additional liabilities with certain related parties to sustain the Company’s existence. If the
Company were not to continue as a going concern, it would likely not be able to realize on its assets at values comparable to
the carrying value or the fair value estimates reflected in the balances set out in the preparation of the financial statements.
CELL SOURCE LIMITED
|
|
NOTES TO FINANCIAL STATEMENTS
|
|
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
|
|
Note
2 - Going Concern (continued)
There can be no assurances
that the Company will be successful in generating additional cash from equity or other sources to be used for operations. The
financial statements do not include any adjustments relating to the recoverability of assets and classification of assets and
liabilities that might be necessary. Should the Company not be successful in obtaining the necessary financing to fund its operations,
the Company would need to curtail certain or all operational activities and/or contemplate the sale of its assets if necessary.
Note
3 – Share Exchange Transaction
On June 30, 2014, Ticket to
See, Inc. (“TTSE”) entered into an Acquisition and Share Exchange Agreement with the Company. Upon the terms and subject
to the conditions of the agreement, at the effective date of the share exchange, the Company was merged with and into TSTE, with
TSTE continuing as the surviving corporation.
At the closing date, TSTE acquired
100% of the issued and outstanding shares of the Company. At the effective date of the share exchange, each share of the Company's
common stock was cancelled and converted automatically into the right to receive common shares of TSTE for an aggregate of 18,245,923
shares common shares of Cell Source Limited, which constituted 78.5% of the post-acquisition outstanding shares of TSTE’s
stock at the end of the share exchange. TSTE’s existing shareholders retained a total of 5,000,000 shares of TSTE’s
stock, which constituted 21.5% of the post-acquisition outstanding shares of TSTE. Post-acquisition and after share exchange,
there was a total of 23,245,923 issued and outstanding shares of TSTE stock, which was recorded as a recapitalization of TSTE.
For accounting purposes, the
transaction described above will be treated as a recapitalization of the Company, the accounting acquirer, because the Company
shareholders own the majority of TSTE’s outstanding common stock following the transaction and exercise significant influence
over the operating and financial policies of the consolidated entity. TSTE was a non-operating company prior to the share exchange.
Pursuant to Securities and Exchange Commission rules, the merger or acquisition of a private operating company into a non-operating
public company with nominal net assets is considered a capital transaction in substance, rather than a business combination.
CELL SOURCE LIMITED
|
|
NOTES TO FINANCIAL STATEMENTS
|
|
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
|
|
Note
4 - Significant Accounting Policies
Use
of Estimates
The preparation of the financial
statements in conformity with accounting principles generally accepted in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period.
Management bases its estimates
on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from
other sources. The most significant estimates, among other things, are used in accounting for valuation allowances for deferred
income taxes, contingencies, as well as the recording and presentation of convertible notes and the embedded conversion feature
and common stock and related warrants issuances. Estimates and assumptions are periodically reviewed and the effects of any material
revisions are reflected in the financial statements in the period that they are determined to be necessary. Actual results could
differ from those estimates and assumptions.
CELL SOURCE LIMITED
|
|
NOTES TO FINANCIAL STATEMENTS
|
|
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
|
|
Note
4 - Significant Accounting Policies (continued)
Cash
and Cash Equivalents
The Company considers all highly-liquid
instruments with an original maturity of three months or less when purchased to be cash equivalents. As of December 31, 2013 and
2012, the Company did not have any cash equivalents.
Income
Taxes
The Company accounts for income
taxes using the asset and liability method. Accordingly, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in the tax rate is recognized in income or expense in the period that the change is effective. Income
tax benefits are recognized when it is probable that the deduction will be sustained. A valuation allowance is established when
it is more likely than not that all or a portion of a deferred tax asset will either expire before the Company is able to realize
the benefit, or that future deductibility is uncertain.
Research
and Development Costs
Research and development costs
are expensed as they are incurred and consist of salaries, stock-based compensation benefits and other personnel related costs,
fees paid to consultants, clinical trials and related clinical manufacturing costs, license and milestone fees, and facilities
and overhead costs. For the years ended December 31, 2013 and 2012 the Company has recorded a charge of research and development
of approximately $1,135,500 and $1,219,500, respectively.
CELL SOURCE LIMITED
|
|
NOTES TO FINANCIAL STATEMENTS
|
|
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
|
|
Note
4 - Significant Accounting Policies (continued)
Loss
Per Share
Basic loss per share was computed
using the weighted average number of outstanding common shares. Diluted loss per share includes the effect of dilutive common
stock equivalents from the assumed exercise of warrants and convertible debt. Common stock equivalents would be excluded from
the computation of diluted loss per share since their inclusion would be anti-dilutive. Total shares issuable upon the exercise
of warrants and convertible debt as of December 31, 2013 and 2012, were comprised as follows:
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
Warrants
|
|
|
2,812,499
|
|
|
|
—
|
|
Convertible notes
|
|
|
—
|
|
|
|
643,199
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,812,499
|
|
|
|
643,199
|
|
For the year ended December
31, 2013, 2,043,835 warrants were included in loss per share because their exercise price was determined to be nominal.
Fair
Value of Financial Instruments
Financial instruments consist
of cash, accounts payable, accrued expenses, convertible debt and derivative liabilities. The Company determines the estimated
fair value of such financial instruments presented in these financial statements using available market information and appropriate
methodologies. These financial instruments are stated at their respective historical carrying amounts, which approximate fair
value due to their short term nature, except derivative instruments which are marked to market at the end of each reporting period.
Derivative
Financial Instruments
In connection with the issuance
of convertible notes, the terms of the convertible notes included an embedded conversion feature; which provided for a conversion
of the convertible notes into shares of common stock at a rate which was determined to be variable. In addition, the Company granted
warrants to investors whereby the exercise prices contained price protection reset provisions. The Company determined that the
conversion feature and exercise prices were derivative instruments pursuant to ASC 815 “Derivatives and Hedging”.
CELL SOURCE LIMITED
|
|
NOTES TO FINANCIAL STATEMENTS
|
|
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
|
|
Note
4 - Significant Accounting Policies (continued)
Derivative
Financial Instruments (continued)
The accounting treatment of
derivative financial instruments requires that the Company record the embedded conversion option and warrants at their fair values
as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value
is recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date. The Company reassesses
the classification of its derivative instruments at each balance sheet date. If the classification changes as a result of events
during the period, the contract is reclassified as of the date of the event that caused the reclassification.
The fair value of an embedded
conversion option that is convertible into at variable amount of shares and warrants that include price protection reset provision
features are deemed to be a “down-round protection” and, therefore, do not meet the scope exception for treatment
as a derivative under ASC 815, since “down-round protection” is not an input into the calculation of the fair value
of the conversion option and warrants and cannot be considered “indexed to the Company’s own stock” which is
a requirement for the scope exception as outlined under ASC 815.
The Company determined the
fair value of the Binomial Lattice Model and the Black-Scholes Method to be materially the same. The Black-Scholes option valuation
model is used to estimate the fair value of the warrants granted. The model includes subjective input assumptions that can materially
affect the fair value estimates. The model was developed for use in estimating the fair value of traded options or warrants. The
expected volatility is estimated based on the most recent historical period of time equal to the weighted average life of the
warrants or options granted.
Foreign
Currency Translation
The New Israeli Shekel is the
functional currency of the Company. Assets and liabilities are translated based on the exchange rates at the balance sheet date,
while revenue and expense accounts are translated at the average exchange rates prevailing during the year. Equity accounts are
translated at historical exchange rates. The resulting translation gain and loss adjustments are accumulated as a component of
other comprehensive income.
Foreign currency gains and
losses resulting from transactions denominated in foreign currencies, including intercompany transactions, are included in results
of operations.
CELL SOURCE LIMITED
|
|
NOTES TO FINANCIAL STATEMENTS
|
|
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
|
|
Note
4 - Significant Accounting Policies (continued)
Foreign
Currency Translation (continued)
Translation gains and losses
were immaterial for the years ended December 31, 2013 and 2012. The Company recorded approximately $21,000 and $64,000 of transaction
losses for the years ended December 31, 2013 and 2012 which have been included in general and administrative expenses, respectively.
Comprehensive
Income (Loss)
The Company reports comprehensive
income (loss) and its components in its financial statements. Comprehensive income (loss) consists of net loss and foreign currency
translation adjustments affecting stockholders’ deficit that, under U.S. GAAP, are excluded from net loss. The differences
between net loss as reported and comprehensive income (loss) have historically been immaterial.
Stock
Split
On November 11, 2013, the Company’s
Board approved a 32-for-1 forward stock split of its common stock, which was approved at a meeting of stockholders held on November
11, 2013. Each share of common stock outstanding immediately prior to the approval date was combined, reclassified and changed
into thirty two of fully paid and non-assessable shares of common stock. All common share and common per share information in
these financial statements and accompanying notes have been retroactively adjusted to reflect the forward stock split for all
periods presented. Simultaneous with the forward stock split the Company increased its authorized shares from 3,800,000 shares
to 50,000,000 shares.
Recent
Accounting Standards
In June 2014, the Financial
Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-10, “Development
Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest
Entities Guidance in Topic 810, Consolidation.” This ASU removes the definition of a development stage entity from the ASC,
thereby removing the financial reporting distinction between development stage entities and other reporting entities from GAAP.
In addition, the ASU eliminates the requirements for development stage entities to (1) present inception-to-date information in
the statements of operations, cash flows, and shareholders’ deficit, (2) label the financial statements as those of a development
stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose
in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development
stage. Early adoption is permitted. The Company has elected to adopt this ASU effective with these Annual Financial Statements
and its adoption resulted in the removal of all development stage disclosures.
CELL SOURCE LIMITED
|
|
NOTES TO FINANCIAL STATEMENTS
|
|
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
|
|
The Company has implemented
all new accounting standards that are in effect and may impact its 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.
Subsequent
Events
The Company evaluates events
that have occurred after the balance sheet date but before the financial statements are issued. Based upon the evaluation, the
Company did not identify any recognized or non-recognized subsequent events that would require adjustment or disclosure in the
financial statements other than as disclosed in Note 14.
CELL SOURCE LIMITED
|
|
NOTES TO FINANCIAL STATEMENTS
|
|
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
|
|
Note
5 - Fair Value
The Company determines the
estimated fair value of amounts presented in these 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 December 31, 2013 and 2012
and, as of those dates, the carrying value of all amounts approximates fair value.
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 other
inputs that are observable, either directly or indirectly. 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.
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.
CELL SOURCE LIMITED
|
|
NOTES TO FINANCIAL STATEMENTS
|
|
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
|
|
Note
5 - Fair Value (continued)
The following table summarizes
the valuation of the Company’s investment by the above fair value hierarchy levels as of December 31, 2013 and 2012 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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability
|
|
$
|
231,200
|
|
|
|
|
|
|
|
|
|
|
$
|
231,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2013
|
|
$
|
231,200
|
|
|
|
|
|
|
|
|
|
|
$
|
231,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Embedded conversion option
|
|
$
|
38,300
|
|
|
|
|
|
|
|
|
|
|
$
|
38,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2012
|
|
$
|
38,300
|
|
|
|
|
|
|
|
|
|
|
$
|
38,300
|
|
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 consist of derivative
liabilities associated with the convertible debt that contains an indeterminable conversion share price and the tainted warrants
as the Company cannot determine if it will have sufficient authorized common stock to settle such arrangements.
Assumptions utilized in the
development of Level 3 liabilities as of and during the year ended December 31, 2013 are described as follows.
|
|
December 31,
|
|
|
2012
|
|
2013
|
Risk-free interest rate
|
|
.05%
|
|
1.75%
|
Expected life of grants
|
|
0.5 Years
|
|
0.5 - 5 years
|
Expected volatility of underlying stock
|
|
98% - 112%
|
|
98% - 117%
|
Dividends
|
|
$0
|
|
$0
|
The expected stock price volatility
for the Company’s stock options was determined by the historical volatilities for industry peers and used an average of
those volatilities. Risk free interest rates were obtained from U.S. Treasury rates for the applicable periods. The expected life
was the contractual life.
CELL SOURCE LIMITED
|
|
NOTES TO FINANCIAL STATEMENTS
|
|
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
|
|
Note
5 - Fair Value (continued)
The following table provides
a summary of the changes in fair value, including net transfers in and/or out, of all financial assets measured at fair value
on a recurring basis using Level III unobservable inputs during the years ended December 31, 2012 and 2013.
|
|
|
|
|
Embedded
|
|
|
|
|
|
|
Warrant
|
|
|
Conversion
|
|
|
|
|
|
|
Liability
|
|
|
Feature
|
|
|
Total
|
|
Balance - January 1, 2012
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in debt discount
|
|
|
—
|
|
|
|
51,800
|
|
|
|
51,800
|
|
Change in fair value of derivative liability
|
|
|
—
|
|
|
|
(13,500
|
)
|
|
|
(13,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2012
|
|
|
—
|
|
|
|
38,300
|
|
|
|
38,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in debt discount
|
|
|
—
|
|
|
$
|
315,200
|
|
|
|
315,200
|
|
Change in fair value of derivative liability
|
|
|
—
|
|
|
|
(353,500
|
)
|
|
|
(353,500
|
)
|
Reclassification of warrants to derivative liability
|
|
|
231,200
|
|
|
|
—
|
|
|
|
231,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2013
|
|
$
|
231,200
|
|
|
$
|
—
|
|
|
$
|
231,200
|
|
The Company’s significant
financial instruments such as cash, accounts payable and accrued expenses and convertible notes payable were deemed to be Level
1 as they approximate fair value due to their short term nature.
Note
6 - Convertible Notes
During the years ended December
31, 2013 and 2012, the Company has issued convertible notes in the amount of $210,000 and $300,000, respectively. The convertible
notes accrue interest at annual interest rates of 6% and mature within six months of original note issuance dates of December
5, 2012, March 5, 2013 and March 24, 2013 respectively and may be prepaid without penalty at any time.
The Convertible Notes are also
convertible at any time at the option of the holder into shares of the Company’s common stock at a conversion price ranging
from 4% to 8% of the total shares of common stock on a fully diluted basis. Therefore, since this embedded conversion feature
provides for the settlement of this convertible note with shares of common stock at a rate which is variable in nature, this embedded
conversion feature must be classified and accounted for as a derivative financial instrument.
CELL SOURCE LIMITED
|
|
NOTES TO FINANCIAL STATEMENTS
|
|
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
|
|
Note
6 - Convertible Notes (continued)
Generally accepted accounting
principles require that:
|
a)
|
Derivative financial instruments
be recorded at their fair value on the date of issuance and then adjusted to fair value
at each subsequent balance sheet date with any change in fair value reported in the statement
of operations; and
|
|
b)
|
The classification of derivative
financial instruments be reassessed as of each balance sheet date and, if appropriate,
be reclassified as a result of events during the reporting period then ended.
|
The fair value of the embedded
conversion feature aggregated to approximately $315,200 and $51,800 for the years ended December 31, 2013 and 2012, respectively,
which has been recorded as a debt discount. The debt discount will be amortized over the earlier of (i) the term of the debt or
(ii) conversion of the debt, using the straight-line method which approximates the interest method. The amortization of debt discount
included as a component of interest expense in the statements of operations for the years ended December 31, 2013 and 2012 was
approximately $358,370 and $8,600, respectively.
On November 11, 2013, the Company
issued 2,699,880 common shares for settlement of approximately $511,200 of convertible notes which was 770,283 shares in excess
of the contractual amount in the conversion provision. The fair value of the shares issued by the Company in excess was $309,890.
Accordingly, the Company recorded a charge of this amount to interest expense. (see Note 10). For the year ended December 31,
2013, the note holders forgave approximately $15,300 of interest expense for no consideration and the Company recorded the charge
to interest expense as a contribution to equity.
CELL SOURCE LIMITED
|
|
NOTES TO FINANCIAL STATEMENTS
|
|
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
|
|
Note
7 – Accounts Payable and Accrued Expenses
As of December 31, 2013 and
2012 accrued expenses consisted of the following:
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
Accrued consulting expenses and related expenses
|
|
$
|
436,348
|
|
|
$
|
—
|
|
Professional fees
|
|
|
109,057
|
|
|
|
30,477
|
|
Accrued payroll
|
|
|
12,944
|
|
|
|
17,700
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
558,349
|
|
|
$
|
48,177
|
|
Note
8 - Consulting Agreements - Related Party
On October 3, 2011, the Company
entered into a definitive license agreement and an exclusive option agreement to negotiate a commercial license with Yeda Research
and Development Company Ltd. (“Yeda”), a founder and shareholder of the Company. Yeda is the technology transfer and
commercial arm of the Weizmann Institute of Science, for research conducted at the Weitzman Institute of Science for an invention
comprising methods of bone marrow transplantation and cell therapy utilizing Veto cells. The option to negotiate originally expired
on June 20, 2014 and was extended to September 1, 2014.
Under the terms of the agreement,
Yeda granted the Company an exclusive worldwide license under the licensed information and the patents for the development, manufacture
and sale of the products. In consideration for the grant of the license, the Company has paid and will pay Yeda: (1) on the date
of signature of the agreement $210,000; (2) an annual license fee for 3 years in the amount of $800,000 for the period until October
3, 2014; (3) A non-refundable and non-creditable license fee of $50,000 per year during the terms of the agreement, commencing
on the first day after the date of termination or expiry of the research period; (4) a royalty of 4% of net future sales by or
on behalf of the Company or any sub licensees.
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. 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.
CELL SOURCE LIMITED
|
|
NOTES TO FINANCIAL STATEMENTS
|
|
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
|
|
Note
8 - Consulting Agreements - Related Party (continued)
For the years ended December
31, 2013 and 2012, the Company has recorded a charge to operations of approximately $784,000 and $796,000, respectively, for this
consulting arrangement as a component of research and development expense. As of December 31, 2013, approximately $441,700 has
been accrued and is payable.
Note
9 - Related Parties
During
the year ended December 31, 2013, the officers and founders of the Company contributed approximately $77,000 of services for no
consideration.
Note
10 - Stockholders’ Deficit
Common
Stock
As
of December 31, 2013 the Company is authorized to issue up to 50,000,000 shares of common stock with $0.001 par value. The ordinary
shares confer upon their holders the right to participate and vote in general stockholders’ meetings of the Company and
to share in the distribution of dividends, if any, declared by the Company.
During
the year ended December 31, 2012, the Company entered into an investment agreement with a group of investors. Pursuant to the
agreement, the Company issued 2,250,000 shares in exchange for $810,000 of cash proceeds.
During the year ended December
31
,
2013, the Company entered into an investment agreement with a group of investors. Pursuant to the agreement, the investors
contributed to the Company the amount of $551,497 in exchange for 735,327 of common shares. Each unit was sold for $0.75 and consisted
of 1 share of common stock and 1 five-year warrant, which entitles the holder to purchase 1 share of common stock at an exercise
price of $0.75 per share.
CELL SOURCE LIMITED
|
|
NOTES TO FINANCIAL STATEMENTS
|
|
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
|
|
Note
10 - Stockholders’ Deficit (continued)
Common
Stock (continued)
The warrants carried provisions
that were deemed to be “down round” price protection features. The Company reclassified approximately $231,200 for
the fair value of the warrants to derivative liabilities which will be marked to market at each reporting period.
On November 11, 2013, the Company
issued 2,699,880 common shares for settlement of approximately $511,200 of convertible notes which was 770,283 shares in excess
of the contractual amount in the conversion provision. The fair value of the shares issued by the Company in excess was $309,890.
Accordingly, the Company recorded a charge of this amount to interest expense. (see Note 6).
CELL SOURCE LIMITED
|
|
NOTES TO FINANCIAL STATEMENTS
|
|
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
|
|
Note
11 - Warrants
Pursuant
to an agreement, on November 11, 2013, certain founders returned to the Company 2,043,835 shares of common stock in exchange for
2,043,835 of warrants. The warrants have an exercise price of $0.001 per share and have a life of 7 years. In addition, the warrants
have a cashless exercise provision and were fully vested on the date of the grant. The Company determined that the exchange was
a modification of a previously granted equity instrument whereby a gain or loss is calculated as the incremental difference between
the fair value of the warrants and the fair value of the shares of common stock returned. The fair value of the warrants was determined
using the Black-Scholes fair value model. Since the fair value of the warrants was less than the common stock returned, no incremental
charge was required to be recorded for the year ended December 31, 2013. Subsequent to the returning of the shares to the Company
retired such shares.
Note
12 - Income Taxes
The income tax provision (benefit)
for the years ended December 31, 2013 and 2012 consists of the following:
|
|
2013
|
|
|
2012
|
|
Current
|
|
$
|
—
|
|
|
$
|
—
|
|
Deferred
|
|
|
|
|
|
|
|
|
Federal (Israel)
|
|
|
(445,913
|
)
|
|
|
(233,418
|
)
|
State
|
|
|
—
|
|
|
|
—
|
|
Foreign
|
|
|
—
|
|
|
|
—
|
|
Change in Valuation Allowance
|
|
|
445,913
|
|
|
|
233,418
|
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
$
|
—
|
|
|
$
|
—
|
|
CELL SOURCE LIMITED
|
|
NOTES TO FINANCIAL STATEMENTS
|
|
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
|
|
Note
12 - Income Taxes (continued)
The reconciliation between
the Israeli income tax rate and the Company’s effective rate for the years ended December 31, 2013 and 2012 is as follows:
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
Statutory tax rate
|
|
|
(25.0
|
)%
|
|
|
(25.0
|
)%
|
|
|
|
|
|
|
|
|
|
Change in valuation
allowance
|
|
|
25.0
|
|
|
|
25.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
%
|
|
|
—
|
%
|
As of December 31, 2013 and
2012, the Company’s deferred tax assets consisted of the effects of temporary differences attributable to the following:
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
Net loss carry forwards
|
|
|
679,330
|
|
|
|
233,418
|
|
Total Deferred Tax Asset
|
|
|
679,330
|
|
|
|
233,418
|
|
Less: valuation allowance
|
|
|
(679,330
|
)
|
|
|
(233,418
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
—
|
|
|
$
|
—
|
|
As of December 31, 2013 and
2012, the Company had approximately $2,717,000 and $934,000, respectively, of net operating loss (“NOL”) carryovers
available to offset future taxable income. Utilized losses may be carried over indefinitely.
Deferred income taxes reflect
the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. In assessing the realization of deferred tax assets, management considers, whether
it is “more likely than not”, that some portion or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary
differences representing net future deductible amounts become deductible.
CELL SOURCE LIMITED
|
|
NOTES TO FINANCIAL STATEMENTS
|
|
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
|
|
Note
12 - Income Taxes (continued)
ASC 740, “Income Taxes”
requires that a valuation allowance be established when it is “more likely than not” that all, or a portion of, deferred
tax assets will not be realized. A review of all available positive and negative evidence needs to be considered, including the
scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies. After consideration
of all the information available, management believes that uncertainty exists with respect to future realization of its deferred
tax assets and has, therefore, established a full valuation allowance as of December 31, 2013 and 2012. As of December 31, 2013
and December 31, 2012, the change in valuation allowance was $445,913 and $233,418 respectively.
ASC 740 also clarifies the
accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition
threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination
by taxing authorities. ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in
interim periods, disclosure and transition. The Company is required to file income tax returns in Israel. Based on the Company’s
evaluation, it has been concluded that there are no material uncertain tax positions requiring recognition in the Company’s
financial statements for the years ended December 31, 2013 and 2012.
The Company’s policy
for recording interest and penalties associated with unrecognized tax benefits is to record such interest and penalties as interest
expense and as a component of selling, general and administrative expense, respectively. There were no amounts accrued for interest
or penalties for the years ended December 31, 2013 and 2012. Management does not expect any material changes in its unrecognized
tax benefits in the next year. The Company also files tax returns in Israel and is subject to examination by tax authorities beginning
with the year ended December 31, 2011.
Note
13 - Commitments and Contingencies
Litigation
Certain conditions may exist
as of the date the 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.
CELL SOURCE LIMITED
|
|
NOTES TO FINANCIAL STATEMENTS
|
|
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
|
|
Note
13 - Commitments and Contingencies (continued)
Litigation
(continued)
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 financial statements. If the assessment indicates that a potentially
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.
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 December 31, 2013 and 2012, the Company has not accrued any amounts for contingencies.
Credit
Risk
Financial instruments that
subject the Company to credit risk consist principally of cash deposits at financial institutions in Israel. These amounts are
uninsured, however, Company believes that credit risk is limited because the Company routinely assesses the financial strength
these institutions. As of December 31, 2013 and 2012, the Company has not experienced any losses and believes it is not exposed
to any significant credit risk from cash.
Severance
Pay Fund
Assets held for employees’
severance payments represent contributions to insurance policies that are recorded at their current redemption value. The deposited
funds include profits and losses accumulated up to the balance sheet date. The deposited funds may be withdrawn only upon the
fulfillment of the obligation pursuant to Israel’s Severance Pay Law or labor agreements.
CELL SOURCE LIMITED
|
|
NOTES TO FINANCIAL STATEMENTS
|
|
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
|
|
Note
13 - Commitments and Contingencies (continued)
Accrued
Severance Pay
Under Israeli law and labor
agreements the Company is required to pay severance payments to each employee who was employed by the Company for over one year
and has been terminated by the Company or resigned under certain specified circumstances. The Company’s liability for the
severance payments is partially covered by deposits with insurance companies in the name of the employee. As of December 31, 2013
and 2012, the Company has accrued $0 and $8,225 for severance pay which has been included in accounts payable and accrued expenses
Note
14 - Subsequent Events
On January 29, 2014, the
Company entered into an investment agreement with a group of investors. Pursuant to the agreement, the investors contributed
to the Company the amount of $245,000 in exchange for 326,667 common shares. Each unit was sold for $0.75 and consisted of 1
share of common stock and 1 five-year warrant, which entitles the holder to purchase 1 share of common stock at an exercise
price of $0.75 per share. The warrants were fully vested on the date of the grant. The warrants carried provisions that were
deemed to be down round price protection features. The Company reclassified $119,100 for the fair value of the warrants to
derivative liabilities and will be marked to market for each reporting period.
On
January 31, 2014, the Company entered into an investment agreement with a group of investors. Pursuant to the agreement, the investors
contributed to the Company the amount of $56,250 in exchange for 75,000 common shares. Each unit was sold for $0.75 and consisted
of 1 share of common stock and 1 five-year warrant, which entitles the holder to purchase 1 share of common stock at an exercise
price of $0.75 per share. The warrants were fully vested on the date of the grant. The warrants carried provisions that were deemed
to be down round price protection features. The Company reclassified $27,300 for the fair value of the warrants to derivative
liabilities and will be marked to market for each reporting period.
On
February 3, 2014, the Company entered into an investment agreement with a group of investors. Pursuant to the agreement, the investors
contributed to the Company the amount of $62,500 in exchange for 83,333 common shares. Each unit was sold for $0.75 and consisted
of 1 share of common stock and 1 five-year warrant, which entitles the holder to purchase 1 share of common stock at an exercise
price of $0.75 per share. The warrants were fully vested on the date of the grant. The warrants carried provisions that were deemed
to be down round price protection features. The Company reclassified $30,400 for the fair value of the warrants to derivative
liabilities and will be marked to market for each
reporting period.
CELL SOURCE LIMITED
|
|
NOTES TO FINANCIAL STATEMENTS
|
|
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
|
|
On
February 4, 2014, the Company entered into an investment agreement with a group of investors. Pursuant to the agreement, the investors
contributed to the Company the amount of $63,000 in exchange for 84,000 common shares. Each unit was sold for $0.75 and consisted
of 1 share of common stock and 1 five-year warrant, which entitles the holder to purchase 1 share of common stock at an exercise
price of $0.75 per share. The warrants were fully vested on the date of the grant. The warrants carried provisions that were deemed
to be down round price protection features. The Company reclassified $30,600 for the fair value of the warrants to derivative
liabilities and will be marked to market for each reporting period.
On
February 6, 2014, the Company entered into an investment agreement with an investor. Pursuant to the agreement, the investor contributed
to the Company the amount of $75,000 in exchange for 100,000 common shares. Each unit was sold for $0.75 and consisted of 1 share
of common stock and 1 five-year warrant, which entitles the holder to purchase 1 share of common stock at an exercise price of
$0.75 per share. The warrants were fully vested on the date of the grant. The warrants carried provisions that were deemed to
be down round price protection features. The Company reclassified $36,500 for the fair value of the warrants to derivative liabilities
and will be marked to market for each reporting period.
On
February 7, 2014, the Company entered into an investment agreement with an investor. Pursuant to the agreement, the investor contributed
to the Company the amount of $52,500 in exchange for 70,000 common shares. Each unit was sold for $0.75 and consisted of 1 share
of common stock and 1 five-year warrant, which entitles the holder to purchase 1 share of common stock at an exercise price of
$0.75 per share. The warrants were fully vested on the date of the grant. The warrants carried provisions that were deemed to
be down round price protection features. The Company reclassified $19,100 for the fair value of the warrants to derivative liabilities
and will be marked to market for each reporting period.
On February 27, 2014, the Company entered into an investment agreement with
an investor. Pursuant to the agreement, the investor contributed to the Company the amount of $50,000 in exchange for 66,667 common
shares. Each unit was sold for $0.75 and consisted of 1 share of common stock and 1 five-year warrant, which entitles the holder
to purchase 1 share of common stock at an exercise price of $0.75 per share. The warrants were fully vested on the date of the
grant. The warrants carried provisions that were deemed to be down round price protection features. The Company reclassified $30,800
for the fair value of the warrants to derivative liabilities and will be marked to market for each reporting period.
CELL SOURCE LIMITED
|
|
NOTES TO FINANCIAL STATEMENTS
|
|
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
|
|
On
March 6, 2014, the Company entered into an investment agreement with a group of investors. Pursuant to the agreement, the investors
contributed to the Company the amount of $1,643,496 in exchange for 2,191,328 common shares. Each unit was sold for $0.75 and
consisted of 1 share of common stock and 1 five-year warrant, which entitles the holder to purchase 1 share of common stock at
an exercise price of $0.75 per share and were fully vested on the date of the grant. The warrants carried provisions that were
deemed to be down round price protection features. The Company reclassified $804,000 for the fair value of the warrants to derivative
liabilities and will be marked to market for each reporting period.
On
April 2, 2014, the Company entered into an investment agreement with a group of investors. Pursuant to the agreement, the investors
contributed to the Company the amount of $182,100 in exchange for 242,800 common shares. Each unit was sold for $0.75 and consisted
of 1 share of common stock and 1 five-year warrant, which entitles the holder to purchase 1 share of common stock at an exercise
price of $0.75 per share and were fully vested on the date of the grant. The warrants carried provisions that were deemed to be
down round price protection features.
On
April 3, 2014, the Company entered into an investment agreement with two investors. Pursuant to the agreement, the investors contributed
to the Company the amount of $55,000 in exchange for 73,333 common shares. Each unit was sold for $0.75 and consisted of 1 share
of common stock and 1 five-year warrant, which entitles the holder to purchase 1 share of common stock at an exercise price of
$0.75 per share. The warrants carried provisions that were deemed to be down round price protection features.
On
April 4, 2014, the Company entered into an investment agreement with two investors. Pursuant to the agreement, the investors contributed
to the Company the amount of $317,900 in exchange for 423,867 common shares. Each unit was sold for $0.75 and consisted of 1 share
of common stock and 1 five-year warrant, which entitles the holder to purchase 1 share of common stock at an exercise price of
$0.75 per share and were fully vested on the date of the grant.. The warrants carried provisions that were deemed to be down round
price protection features.
CELL SOURCE LIMITED
|
|
NOTES TO FINANCIAL STATEMENTS
|
|
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
|
|
On
April 7, 2014, the Company entered into an investment agreement with a group of investors. Pursuant to the agreement, the investors
contributed to the Company the amount of $265,250 in exchange for 353,666 common shares. Each unit was sold for $0.75 and consisted
of 1 share of common stock and 1 five-year warrant, which entitles the holder to purchase 1 share of common stock at an exercise
price of $0.75 per share and were fully vested on the date of the grant. The warrants carried provisions that were deemed to be
down round price protection features.
CELL SOURCE
LIMITED
CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31,
2014 AND 2013
CELL SOURCE LIMITED
|
|
CONTENTS
|
CELL SOURCE LIMITED
|
|
CONDENSED BALANCE SHEETS
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
936,086
|
|
|
$
|
28,878
|
|
Prepaid expenses
|
|
|
96,150
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
1,032,236
|
|
|
|
28,878
|
|
|
|
|
|
|
|
|
|
|
Other Assets
|
|
|
143,686
|
|
|
|
63,337
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
1,175,922
|
|
|
$
|
92,215
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
167,052
|
|
|
$
|
558,349
|
|
Derivative liabilities
|
|
|
1,376,500
|
|
|
|
231,200
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
1,543,552
|
|
|
|
789,549
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Deficit
|
|
|
|
|
|
|
|
|
Common shares of $0.01 par value:
|
|
|
|
|
|
|
|
|
50,000,000 shares authorized; 17,152,185 and 14,155,190 shares issued and
outstanding at March 31, 2014 and December 31, 2013, respectively
|
|
|
171,522
|
|
|
|
141,552
|
|
Additional paid-in capital
|
|
|
4,222,101
|
|
|
|
3,102,125
|
|
Accumulated deficit
|
|
|
(4,761,253
|
)
|
|
|
(3,941,011
|
)
|
|
|
|
|
|
|
|
|
|
Total Stockholders’ Deficit
|
|
|
(367,630
|
)
|
|
|
(697,334
|
)
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders’ Deficit
|
|
$
|
1,175,922
|
|
|
$
|
92,215
|
|
See accompanying notes to financial
statements.
CELL SOURCE LIMITED
|
|
CONDENSED STATEMENTS OF OPERATIONS
|
|
|
For the Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
(536,775
|
)
|
|
|
(179,246
|
)
|
General and administrative
|
|
|
(235,967
|
)
|
|
|
(48,753
|
)
|
|
|
|
|
|
|
|
|
|
Total Operating
Expenses
|
|
|
(772,742
|
)
|
|
|
(227,999
|
)
|
|
|
|
|
|
|
|
|
|
Operating Loss
|
|
|
(772,742
|
)
|
|
|
(227,999
|
)
|
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
|
—
|
|
|
|
(34,533
|
)
|
|
|
|
|
|
|
|
|
|
Change in Fair
Value of Derivative Liability
|
|
|
(47,500
|
)
|
|
|
10,200
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(820,242
|
)
|
|
$
|
(252,332
|
)
|
|
|
|
|
|
|
|
|
|
Loss Per
Share - Basic and Diluted
|
|
$
|
0.05
|
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Number of
Shares Outstanding
|
|
|
17,304,524
|
|
|
|
12,763,818
|
|
See accompanying notes to condensed
financial statements.
CELL SOURCE LIMITED
|
|
CONDENSED STATEMENTS OF STOCKHOLDERS' DEFICIT
|
(UNAUDITED)
|
FOR THE THREE MONTHS ENDED MARCH 31, 2014
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance -
December 31, 2013
|
|
|
14,155,190
|
|
|
$
|
141,552
|
|
|
$
|
3,102,125
|
|
|
$
|
(3,941,011
|
)
|
|
$
|
(697,334
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock and warrants for cash
|
|
|
2,996,995
|
|
|
$
|
29,970
|
|
|
$
|
2,217,776
|
|
|
$
|
—
|
|
|
$
|
2,247,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of detachable warrants to derivative
liability
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,097,800
|
)
|
|
|
|
|
|
|
(1,097,800
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(820,242
|
)
|
|
|
(820,242
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance -
March 31,
2014
|
|
|
17,152,185
|
|
|
$
|
171,522
|
|
|
$
|
4,222,101
|
|
|
$
|
(4,761,253
|
)
|
|
$
|
(367,630
|
)
|
See accompanying notes to condensed
financial statements.
CELL SOURCE LIMITED
|
|
CONDENSED STATEMENTS OF CASH FLOWS
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(820,242
|
)
|
|
$
|
(252,332
|
)
|
Adjustments to reconcile net loss to net cash used
in operating activities:
|
|
|
|
|
|
|
|
|
Accretion of debt discount
|
|
|
—
|
|
|
|
34,533
|
|
Change in fair value of derivative liability
|
|
|
47,500
|
|
|
|
(10,200
|
)
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
(Increase) decrease in other assets
|
|
|
(80,349
|
)
|
|
|
12,695
|
|
(Increase) decrease in prepaid expenses
|
|
|
(96,149
|
)
|
|
|
—
|
|
(Decrease) increase in accrued
expenses and other liabilities
|
|
|
(391,298
|
)
|
|
|
31,595
|
|
|
|
|
|
|
|
|
|
|
Total Adjustments
|
|
|
(520,296
|
)
|
|
|
68,623
|
|
|
|
|
|
|
|
|
|
|
Net Cash Used
in Operating Activities
|
|
|
(1,340,538
|
)
|
|
|
(183,709
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
Proceeds from issuance of convertible note
|
|
|
—
|
|
|
|
210,000
|
|
Proceeds from issuance of common
stock and warrants, net
|
|
|
2,247,746
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided
by Financing Activities
|
|
|
2,247,746
|
|
|
|
210,000
|
|
|
|
|
|
|
|
|
|
|
Increase in Cash
|
|
|
907,208
|
|
|
|
26,291
|
|
|
|
|
|
|
|
|
|
|
Cash
-
Beginning of period
|
|
|
28,878
|
|
|
|
161,323
|
|
|
|
|
|
|
|
|
|
|
Cash
-
End of period
|
|
$
|
936,086
|
|
|
$
|
187,614
|
|
See accompanying notes to condensed
financial statements.
CELL SOURCE LIMITED
|
|
CONDENSED STATEMENTS OF CASH FLOWS (CONTINUED)
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Supplemental Disclosures of Cash
Flow Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest expense
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of detachable warrants to derivative
liability
|
|
$
|
1,097,800
|
|
|
$
|
—
|
|
See accompanying notes to condensed
financial statements.
CELL SOURCE LIMITED
|
|
NOTES TO CONDENSED FINANCIAL STATEMENTS
|
|
FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013
|
|
Note
1 - Organization and Nature of Business
Cell Source Limited ("the
Company") was incorporated on September 15, 2011 under the General Corporation Law of Israel to engage in the research and
development of cell therapy treatments and a new source of human organs based on research performed at the Weizman Institute of
Science in Israel. The Company’s operations and corporate headquarters are located in Israel.
Note
2 -
Basis of Presentation
The accompanying unaudited
condensed financial statements of the Company have been prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. The results of operations for the three months ended
March 31, 2014 are not necessarily indicative of the results to be expected for the year ending December 31, 2014. The interim
condensed financial statements should be read in connection with the audited financial statements and footnotes for the year ended
December 31, 2013.
Note
3 - Going Concern
The Company has not generated
any revenues since its inception, has recurring net losses, a working capital deficiency as of March 31, 2014 and December 31,
2013 of approximately $511,000 and $761,000, respectively, and used cash in operations of approximately $1,340,500 and $183,700
for the three months ended March 31, 2014 and 2013, respectively. In addition, the Company has an accumulated deficit of approximately
$4,761,000 from inception. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
CELL SOURCE LIMITED
|
|
NOTES TO CONDENSED FINANCIAL STATEMENTS
|
|
FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013
|
|
Note
3 - Going Concern (continued)
The financial statements have
been prepared on the going concern basis, which assumes the realization of assets and liquidation of liabilities in the normal
course of operations. The ability of the Company to continue its operations is dependent on management’s plans, which include
the raising of capital through debt and/or equity markets with some additional funding from other traditional financing sources,
including term notes, until such time that funds provided by operations are sufficient to fund working capital requirements. The
Company may need to incur additional liabilities with certain related parties to sustain the Company’s existence. If the
Company were not to continue as a going concern, it would likely not be able to realize on its assets at values comparable to
the carrying value or the fair value estimates reflected in the balances set out in the preparation of the financial statements.
There can be no assurances
that the Company will be successful in generating additional cash from equity or other sources to be used for operations. The
financial statements do not include any adjustments relating to the recoverability of assets and classification of assets and
liabilities that might be necessary. Should the Company not be successful in obtaining the necessary financing to fund its operations,
the Company would need to curtail certain or all operational activities and/or contemplate the sale of its assets if necessary.
Note
4 - Significant Accounting Policies
Use
of Estimates
The preparation of the financial
statements in conformity with accounting principles generally accepted in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period.
Management bases its estimates
on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from
other sources. The most significant estimates, among other things, are used in accounting for allowances for deferred income taxes,
contingencies, as well as the recording and presentation of its common stock and related warrant issuances. Estimates and assumptions
are periodically reviewed and the effects of any material revisions are reflected in the financial statements in the period that
they are determined to be necessary. Actual results could differ from those estimates and assumptions.
CELL SOURCE LIMITED
|
|
NOTES TO CONDENSED FINANCIAL STATEMENTS
|
|
FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013
|
|
Note
4 - Significant Accounting Policies (continued)
Research
and Development Costs
Research and development costs
are expensed as they are incurred and consist of salaries, stock-based compensation benefits and other personnel related costs,
fees paid to consultants, clinical trials and related clinical manufacturing costs, license and milestone fees, and facilities
and overhead costs. For the three months ended March 31, 2014 and 2013, the Company has recorded a charge of research and development
of approximately $537,000 and $179,000, respectively.
CELL SOURCE LIMITED
|
|
NOTES TO CONDENSED FINANCIAL STATEMENTS
|
|
FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013
|
|
Note
4 - Significant Accounting Policies (continued)
Loss
Per Share
Basic loss per share was computed
using the weighted average number of outstanding common shares. Diluted loss per share includes the effect of dilutive common
stock equivalents from the assumed exercise of warrants. Common stock equivalents were excluded from the computation of diluted
loss per share since their inclusion would be anti-dilutive. Total shares issuable upon the exercise of warrants as of March 31,
2014 and 2013 were as follows:
|
|
March 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
5,809,494
|
|
|
|
—
|
|
For the three months ended
March 31, 2014, 2,043,835 warrants were included in loss per share because their exercise price was determined to be nominal.
Derivative
Financial Instruments
In connection with the issuance
of certain convertible promissory notes, the terms of the convertible notes included an embedded conversion feature; which provided
for a conversion of the convertible notes into shares of common stock at a rate which was determined to be variable. The Company
determined that the conversion feature was an embedded derivative instrument pursuant to ASC 815 “Derivatives and Hedging”
The accounting treatment of
derivative financial instruments requires that the Company record the embedded conversion option and warrants at their fair values
as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value
is recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date. The Company reassesses
the classification of its derivative instruments at each balance sheet date. If the classification changes as a result of events
during the period, the contract is reclassified as of the date of the event that caused the reclassification.
CELL SOURCE LIMITED
|
|
NOTES TO CONDENSED FINANCIAL STATEMENTS
|
|
FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013
|
|
Note
4 - Significant Accounting Policies (continued)
Derivative
Financial Instruments (continued)
The fair value of an embedded
conversion option that is convertible into at variable amount of shares and warrants that include price protection reset provision
features are deemed to be a “down-round protection” and, therefore, do not meet the scope exception for treatment
as a derivative under ASC 815, since “down-round protection” is not an input into the calculation of the fair value
of the conversion option and warrants and cannot be considered “indexed to the Company’s own stock” which is
a requirement for the scope exception as outlined under ASC 815.
The Company determined the
fair value of the Binomial Lattice Model and the Black-Scholes Method to be materially the same. The Black-Scholes option valuation
model is used to estimate the fair value of the warrants granted. The model includes subjective input assumptions that can materially
affect the fair value estimates. The model was developed for use in estimating the fair value of traded options or warrants. The
expected volatility is estimated based on the most recent historical period of time equal to the weighted average life of the
warrants or options granted.
Recent
Accounting Standards
In June 2014, the Financial
Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-10, “Development
Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest
Entities Guidance in Topic 810, Consolidation.” This ASU removes the definition of a development stage entity from the ASC,
thereby removing the financial reporting distinction between development stage entities and other reporting entities from GAAP.
In addition, the ASU eliminates the requirements for development stage entities to (1) present inception-to-date information in
the statements of operations, cash flows, and shareholders’ deficit, (2) label the financial statements as those of a development
stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose
in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development
stage. Early adoption is permitted. The Company has elected to adopt this ASU effective with this Annual Financial Statements
and its adoption resulted in the removal of all development stage disclosures.
CELL SOURCE LIMITED
|
|
NOTES TO CONDENSED FINANCIAL STATEMENTS
|
|
FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013
|
|
Recent
Accounting Standards (continued)
The Company has implemented
all new accounting standards that are in effect and may impact its 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.
Subsequent
Events
The Company evaluates events
that have occurred after the balance sheet date but before the financial statements are issued. Based upon the evaluation, the
Company did not identify any recognized or non-recognized subsequent events that would require adjustment or disclosure in the
condensed financial statements other than disclosed in Note 11.
CELL SOURCE LIMITED
|
|
NOTES TO CONDENSED FINANCIAL STATEMENTS
|
|
FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013
|
|
Note
5 - Fair Value
The Company determines the
estimated fair value of amounts presented in these financial statements using available market information and appropriate methodologies.
However, considerable judgment is required in interpreting market data to develop the estimates of fair value. The estimates presented
in the financial statements are not necessarily indicative of the amounts that could be realized in a current exchange between
buyer and seller. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated
fair value amounts. These fair value estimates were based upon pertinent information available as of March 31, 2014 and 2013 and,
as of those dates, the carrying value of all amounts approximates fair value.
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 other
inputs that are observable, either directly or indirectly. 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.
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.
CELL SOURCE LIMITED
|
|
NOTES TO CONDENSED FINANCIAL STATEMENTS
|
|
FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013
|
|
Note
5 - Fair Value (continued)
The following table summarizes
the valuation of the Company’s derivatives by the above fair value hierarchy levels as of March 31, 2014 and December 31,
2013 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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability
|
|
|
1,376,500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,376,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance -
March
31, 2014
|
|
$
|
1,376,500
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,376,500
|
|
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 consist of the tainted
warrants as the Company cannot determine if it will have sufficient authorized common stock to settle such arrangements.
Assumptions utilized in the
development of Level 3 liabilities as of March 31, 2014 are described as follows:
Risk-free interest rate
|
|
1.46%-1.73%
|
Expected life of grants
|
|
5 years
|
Expected volatility of underlying
stock
|
|
165% - 169%
|
Dividends
|
|
$—
|
The expected stock price volatility
for the Company’s stock options was determined by the historical volatilities for industry peers and used an average of
those volatilities. Risk free interest rates were obtained from U.S. Treasury rates for the applicable periods. The expected life
was the contractual life.
CELL SOURCE LIMITED
|
|
NOTES TO CONDENSED FINANCIAL STATEMENTS
|
|
FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013
|
|
Note
5 - Fair Value (continued)
The following table provides
a summary of the changes in fair value, including net transfers in and/or out, of all financial assets measured at fair value
on a recurring basis using Level III unobservable inputs during the three months ended March 31, 2014.
|
|
Warrant
|
|
|
|
|
|
|
Liability
|
|
|
Total
|
|
|
|
|
|
|
|
|
Balance -
December
31, 2013
|
|
$
|
231,200
|
|
|
$
|
231,200
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of derivative liability
|
|
|
47,500
|
|
|
|
47,500
|
|
Reclassification of warrants to derivative liability
|
|
|
1,097,800
|
|
|
|
1,097,800
|
|
|
|
|
|
|
|
|
|
|
Balance -
March
31, 2014
|
|
$
|
1,376,500
|
|
|
$
|
1,376,500
|
|
The Company’s significant
financial instruments such as cash, accounts payable and accrued expenses were deemed to approximate fair value due to their short
term nature.
Note
6 - Accrued Expenses and Accounts Payable
As of March 31, 2014 accrued
expenses consisted of the following:
Accrued consulting and related expenses
|
|
$
|
142,043
|
|
Accrued payroll
|
|
|
25,009
|
|
|
|
|
|
|
Total
|
|
$
|
167,052
|
|
CELL SOURCE LIMITED
|
|
NOTES TO CONDENSED FINANCIAL STATEMENTS
|
|
FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013
|
|
Note
7 - Consulting Agreement – Related Party
On October 3, 2011, the Company
entered into a definitive license agreement and an exclusive option agreement to negotiate a commercial license with Yeda Research
and Development Company Ltd. (“Yeda”), a founder and shareholder of the Company. Yeda is the technology transfer and
commercial arm of the Weizmann Institute of Science, for research conducted at the Weitzman Institute of Science for an invention
comprising methods of bone marrow transplantation and cell therapy utilizing Veto cells. The option to negotiate originally expired
on June 20, 2014 and was extended to September 1, 2014.
Under the terms of the agreement,
Yeda granted the Company an exclusive worldwide license under the licensed information and the patents for the development, manufacture
and sale of the products. In consideration for the grant of the license, the Company has paid and will pay Yeda: (1) on the date
of signature of the agreement $210,000; (2) an annual license fee for 3 years in the amount of $800,000 for the period until October
3, 2014; (3) A non-refundable and non-creditable license fee of $50,000 per year during the terms of the agreement, commencing
on the first day after the date of termination or expiry of the research period, (4) a royalty of 4% of net future sales by or
on behalf of the Company or any sub licensees.
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. 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.
For the three months ended
March 31, 2014 and 2013, the Company has recorded a charge to operations of $410,000 and $160,300, respectively, for this consulting
arrangement. As of March 31, 2014 and December 31, 2013, approximately 0 and $380,000 has been accrued and is payable, respectively.
Note
8 - Stockholders’ Deficit
Common
Stock
During
the three months ended March 31, 2014, the Company entered into an investment agreement with a group of investors. Pursuant to
the agreement, the investors contributed to the Company the amount of $2,247,746 in exchange for 2,996,995 common shares. Each
unit was sold for $0.75 and consisted of 1 share of common stock and 1 five-year warrant, which entitles the holder to purchase
1 share of common stock at an exercise price of $0.75 pershare.
CELL SOURCE LIMITED
|
|
NOTES TO CONDENSED FINANCIAL STATEMENTS
|
|
FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013
|
|
Note
8 - Stockholders’ Deficit (continued)
Common
Stock (continued)
The
warrants were fully vested on the date of the grant. The warrants carried provisions that were deemed to be down round price protection
features.. The Company reclassified $1,097,800 for the fair value of the warrants to derivative liabilities and will be marked
to market for each reporting period.
Note
9 - Commitments and Contingencies
Litigation
Certain conditions may exist
as of the date the condensed 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 condensed financial statements. If the assessment indicates that a
potentially 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.
Loss contingencies considered
remote are generally not disclosed, unless they involve guarantees, in which case the guarantees would be disclosed. There can
be no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and
results of operations or cash flows. As of March 31, 2014 and December 31, 2013, the Company has not accrued any amounts for contingencies.
Note
11 - Subsequent Events
On
April 2, 2014, the Company entered into an investment agreement with a group of investors. Pursuant to the agreement, the investors
contributed to the Company the amount of $182,100 in exchange for 242,800 common shares. Each unit was sold for $0.75 and consisted
of 1 share of common stock and 1 five-year warrant, which entitles the holder to purchase 1 share of common stock at an exercise
price of $0.75 per share. The warrants were fully vested on the date of the grant. The warrants carried provisions that were deemed
to be down round price protection features.
CELL SOURCE LIMITED
|
|
NOTES TO CONDENSED FINANCIAL STATEMENTS
|
|
FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013
|
|
On
April 3, 2014, the Company entered into an investment agreement with two investors. Pursuant to the agreement, the investors contributed
to the Company the amount of $55,000 in exchange for 73,333 common shares. Each unit was sold for $0.75 and consisted of 1 share
of common stock and 1 five-year warrant, which entitles the holder to purchase 1 share of common stock at an exercise price of
$0.75 per share. The warrants were fully vested on the date of the grant. The warrants carried provisions that were deemed to
be down round price protection features.
On
April 4, 2014, the Company entered into an investment agreement with two investors. Pursuant to the agreement, the investors contributed
to the Company the amount of $317,900 in exchange for 423,867 common shares. Each unit was sold for $0.75 and consisted of 1 share
of common stock and 1 five-year warrant, which entitles the holder to purchase 1 share of common stock at an exercise price of
$0.75 per share. The warrants were fully vested on the date of the grant. The warrants carried provisions that were deemed to
be down round price protection features.
On
April 7, 2014, the Company entered into an investment agreement with a group of investors. Pursuant to the agreement, the investors
contributed to the Company the amount of $265,250 in exchange for 353,666 common shares. Each unit was sold for $0.75 and consisted
of 1 share of common stock and 1 five-year warrant, which entitles the holder to purchase 1 share of common stock at an exercise
price of $0.75 per share. The warrants were fully vested on the date of the grant. The warrants carried provisions that were deemed
to be down round price protection features.
On June 30, 2014, Ticket to
See, Inc. (“TTSE”) entered into an Acquisition and Share Exchange Agreement with the Company. Upon the terms and subject
to the conditions of the agreement, at the effective date of the share exchange, the Company was merged with and into TSTE, with
TSTE continuing as the surviving corporation.
At the closing date, TSTE acquired
100% of the issued and outstanding shares of the Company. At the effective date of the share exchange, each share of the Company's
common stock was cancelled and converted automatically into the right to receive common shares of TSTE for an aggregate of 18,245,923
shares common shares of Cell Source Limited, which constituted 78.5% of the post-acquisition outstanding shares of TSTE’s
stock at the end of the share exchange. TSTE’s existing shareholders retained a total of 5,000,000 shares of TSTE’s
stock, which constituted 21.5% of the post-acquisition outstanding shares of TSTE. Post-acquisition and after share exchange,
there was a total of 23,245,923 issued and outstanding shares of TSTE stock, which was recorded as a recapitalization of TSTE.
For accounting purposes, the
transaction described above will be treated as a recapitalization of the Company, the accounting acquirer, because the Company
shareholders own the majority of TSTE’s outstanding common stock following the transaction and exercise significant influence
over the operating and financial policies of the consolidated entity. TSTE was a non-operating company prior to the share exchange.
Pursuant to Securities and Exchange Commission rules, the merger or acquisition of a private operating company into a non-operating
public company with nominal net assets is considered a capital transaction in substance, rather than a business combination.
In
July 2014, the Company issued 100,000 shares of common stock in lieu of cash payment for legal services.
PART II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of
Issuance and Distribution.
We are paying all
of the selling stockholders’ expenses related to this offering, except that the selling stockholders will pay any applicable
underwriting discounts and commissions. The fees and expenses payable by us in connection with this Registration Statement are
estimated as follows:
Securities and Exchange Commission Registration Fee
|
|
$
|
1,486.66
|
|
Accounting Fees and Expenses
|
|
$
|
200,000*
|
|
Legal Fees and Expenses
|
|
$
|
50,000*
|
|
Miscellaneous Fees and Expenses
|
|
$
|
5,000*
|
|
Total
|
|
$
|
256,486.66*
|
|
* Estimate
Item 14.
Indemnification of Directors and Officers
Neither our Articles
of Incorporation nor Bylaws prevent us from indemnifying our officers, directors and agents to the extent permitted under the Nevada
Revised Statute (“NRS”). NRS Section 78.7502 provides that a corporation shall indemnify any director, officer, employee
or agent of a corporation against expenses, including attorneys’ fees, actually and reasonably incurred by him in connection
with any the defense to the extent that a director, officer, employee or agent of a corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to NRS Section 78.7502(1) or 78.7502(2), or in defense of any
claim, issue or matter therein.
NRS Section 78.7502(1)
provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by
or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses, including attorneys’ fees, judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with the action, suit or proceeding if he: (a) is not liable
pursuant to NRS Section 78.138; or (b) acted in good faith and in a manner which he reasonably believed to be in or not opposed
to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful.
NRS Section 78.7502(2)
provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact
that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against
expenses, including amounts paid in settlement and attorneys’ fees actually and reasonably incurred by him in connection
with the defense or settlement of the action or suit if he: (a) is not liable pursuant to NRS Section 78.138; or (b) acted in good
faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation. Indemnification
may not be made for any claim, issue or matter as to which such a person has been adjudged by a court of competent jurisdiction,
after exhaustion of all appeals there from, to be liable to the corporation or for amounts paid in settlement to the corporation,
unless and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction determines
upon application that in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for
such expenses as the court deems proper.
NRS Section 78.747
provides that except as otherwise provided by specific statute, no director or officer of a corporation is individually liable
for a debt or liability of the corporation, unless the director or officer acts as the alter ego of the corporation. The court
as a matter of law must determine the question of whether a director or officer acts as the alter ego of a corporation.
Insofar as indemnification
for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to
the foregoing provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy
as expressed in the Securities Act and is therefore unenforceable. In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection
with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public policy
as expressed hereby in the Securities Act and we will be governed by the final adjudication of such issue.
Item 15. Recent Sales of Unregistered Securities
See the section entitled
“Certain Relationships and Related Transactions” on page 46 of this Form S-1.
In September 2011,
Cell Source Israel issued an aggregate of 3,673,527 shares of CSL Ordinary Shares to certain founders of Cell Source Israel, including
575,004 CSL Ordinary Shares to Itamar Shimrat, 100,023 CSL Ordinary Shares to Yoram Drucker, 920,830 CSL Ordinary Shares to Yeda
and 352,658 CSL Ordinary Shares to Dr. Reisner.
In November 2011, Cell
Source Israel issued an aggregate of 3,750,000 shares of CSL Ordinary Shares to certain accredited investors, including 1,875,000
CSL Ordinary Shares to Ben Friedman’s wife, Phyllis Freidman. Cell Source Israel received gross proceeds of $1,200,000 for
the sale of the 3,750,000 CSL Ordinary Shares (the “First Private Placement”).
In April 2012, Cell
Source Israel issued an aggregate of 2,250,000 shares of CSL Ordinary Shares to certain accredited investors, including 1,125,000
CSL Ordinary Shares to Ben Friedman’s wife, Phyllis Freidman. Cell Source Israel received gross proceeds of $800,000 for
the sale of the 2,250,000 CSL Ordinary Shares (the “Second Private Placement”).
In December 2012 and
March 2013, a group of five accredited investors (the “Note Investors”), including David Zolty, a director of the Company,
and Phyllis Friedman, the wife of the Company's director Ben Friedman, entered into Convertible Loan Agreements (the “Loan
Agreements”) pursuant to which the Note Investors loaned Cell Source Israel an aggregate of $510,000 (the “Loan Amount”).
In accordance with the Loan Agreements the Note Investors were entitled to receive interest equal to 6% of the Loan Amount per
annum and the Loan Amount was payable by Cell Source 6 months after the receipt of the Loan Amount. In November 2013, the Note
Investors elected to convert the Loan Amount into CSL Ordinary Shares equal to 18% of Cell Source’s fully-diluted issued
and outstanding capital, which issuance did not dilute the Note Investors’ prior holdings (the “Note Exchange”).
Accordingly, the Note Investors were issued 2,699,880 CSL Ordinary Shares.
In October 2013, Cell
Source Israel and the Note Investors entered into a Bridge Funding Agreement pursuant to which the Note Investors paid $50,000
to Cell Source Israel in exchange for Cell Source Israel’s agreement to issue to the Note Investors an aggregate of 66,667
CSL Ordinary Shares and a warrant to purchase 100,000 CSL Ordinary Shares at an exercise price of $0.75 per share. In or around
November 2013, the Note Investors elected to convert the $50,000 owed to them under the Bridge Funding Agreement into 66,667 CSL
Ordinary Shares and warrants to purchase 100,000 CSL Ordinary Shares at an exercise price of $0.75 per share.
In connection with
the First Private Placement, the Second Private Placement, the Note Exchange, the Bridge Exchange and the Private Offering (pursuant
to which Cell Source Israel sold an aggregate of 4,759,324 CSL Ordinary Shares), Yeda and Dr. Reisner exercised their anti-dilution
rights granted to them pursuant to the Yeda License Agreement and the consulting agreement between Dr. Reisner and Cell Source
Israel, which anti-dilution rights protected their combined 26% interest in Cell Source Israel against all issuances of CSL Ordinary
Shares in connection with financings up to an aggregate of $3,500,000. Pursuant to the anti-dilution protection Yeda and Dr. Riesner
were entitled to issuances, in the form of any combination of CSL Ordinary Shares and warrants to purchase CSL Ordinary Shares
at par value, at their election. Accordingly, Cell Source Israel issued 239,142 CSL Ordinary Shares and warrants to purchase 1,995,376
CSL Ordinary Shares at par value to Yeda and 807,314 CSL Ordinary Shares and warrants to purchase 48,459 CSL Ordinary Shares at
par value to Dr. Reisner.
In July 2014, the Company
issued 100,000 shares of common stock to Sichenzia Ross Friedman Ference LLP for legal services rendered, which shares of common
stock are being registered pursuant to this Registration Statement.
The transactions described
above were exempt from securities registration provided by Section 4(a)(2) of the Securities Act and Rule 506 as promulgated under
the Securities Act for transactions not involving a public offering and under Regulation S promulgated by the SEC.
Item 16. Exhibits and Financial
Statement Schedules.
Exhibit Number
|
|
Description
|
2.1 (1)
|
|
Share Exchange Agreement, dated June 30, 2014, by and between Cell Source, Ltd., and Ticket to See, Inc.
|
3.1 (1)
|
|
Articles of Association of Cell Source Limited, dated August 14, 2011, as amended on November 11, 2013
|
3.2 (2)
|
|
Articles of Incorporation of Ticket to See, Inc., dated June 6, 2012
|
3.3 (3)
|
|
Certificate of Amendment to Articles of Incorporation of Ticket to See, Inc., dated June 23, 2014
|
3.3 (4)
|
|
Certificate of Amendment to Articles of Incorporation of Ticket to See, Inc., dated May 20, 2014
|
3.4 (2)
|
|
Bylaws of Cell Source, Inc., dated June 6, 2012
|
5.1*
|
|
Opinion of Sichenzia Ross Friedman Ference LLP
|
10.1 (1)
|
|
Form of Subscription Agreement
|
10.2 (1)
|
|
Form of Registration Rights Agreement
|
10.3 (1)
|
|
Form of Investor Warrant
|
10.4 (1)
|
|
Form of Researcher Company Warrant
|
10.5 (1)
|
|
Form of Company Warrant
|
10.6 (1)
|
|
Form of Lockup Agreement (included in Exhibit 2.1)
|
10.7 (1)
|
|
Research and License Agreement by and between Yeda Research and Development Company Limited and Cell Source Limited, dated October 3, 2011
|
10.8 (1)
|
|
Amendment to Research and License Agreement
|
10.9 (1)
|
|
Evaluation and Exclusive Option Agreement by and between Yeda Research and Development Company Limited and Cell Source Limited, dated Oct. 3, 2011 (included in Exhibit 10.7)
|
10.10 (1)
|
|
Amendment dated April 1, 2014 to Evaluation and Exclusive Option Agreement by and between Yeda Research and Development Company Limited and Cell Source Limited
|
10.11 (1)
|
|
Second Amendment dated June 22, 2014 to Evaluation and Exclusive Option Agreement by and between Yeda Research and Development Company Limited and Cell Source Limited
|
10.12 (1)
|
|
Consulting Agreement by and between Cell Source Limited and Professor Yair Reisner
|
10.13**
|
|
Form of Amendment No. 1 to Registration Rights Agreement
|
23.1**
|
|
Consent of Marcum LLP
|
23.2*
|
|
Consent of Sichenzia Ross Friedman Ference LLP (included in Exhibit 5.1)
|
24.1**
|
|
Power of Attorney (included in Registration Statement under "Signatures")
|
16.1 (1)
|
|
Letter from Paritz & Company, P.A.
|
99.1 (1)
|
|
Pro forma financial information
|
101.INS***
|
|
XBRL Instance Document
|
101.SCH***
|
|
XBRL Taxonomy Extension Schema Document
|
101.CAL***
|
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
101.DEF***
|
|
XBRL Taxonomy Extension Definition Linkbase Document
|
101.LAB***
|
|
XBRL Taxonomy Extension Label Linkbase Document
|
101.PRE***
|
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
|
(1)
|
Incorporated by reference to the Company's current report on Form 8-K filed with the Securities and Exchange Commission on
July 1, 2014
|
|
(2)
|
Incorporated by reference to the Company's Registration on Form S-1 filed with the Securities and Exchange Commission on June
6, 2012
|
|
(3)
|
Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange Commission on June 26, 2014.
|
|
(4)
|
Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange Commission on June 6, 2014.
|
|
*
|
To be filed by
amendment
|
Item 17. Undertakings.
(a) The undersigned
registrant hereby undertakes to:
(1)
File, during any period in which it offers or sells securities, a post-effective amendment to this Registration Statement to:
(i)
Include any prospectus required by Section 10(a)(3) of the Securities Act;
(ii)
Reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information
in the Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end
of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering
price set forth in the “Calculation of Registration Fee” table in the effective Registration Statement.
(iii)
Include any additional or changed material information on the plan of distribution.
(2)
For determining liability under the Securities Act, treat each post-effective amendment as a new registration statement of
the securities offered, and the offering of the securities at that time to be the initial bona fide offering.
(3)
File a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering.
(b) Insofar as
indemnification for liabilities arising under the Securities Act of 1933 (the “Act”) may be permitted to directors,
officers and controlling persons of the registrant pursuant to foregoing provisions, or otherwise, the registrant has been advised
that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed
in the Act and will be governed by the final adjudication of such issue.
(c) Each prospectus
filed pursuant to Rule 424(b)(Sec.230.424(b) of this chapter) as part of a registration statement relating to an offering, other
than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A (Sec.230.430A of this
chapter), shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness.
Provided that no statement made in a registration statement or prospectus that is part of the registration statement or made in
a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration
statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that
was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately
prior to such date of first use.
(d) For purposes
of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant
to Rule 424(b) or under the Securities Act shall be deemed to be part of this registration statement as of the time it
was declared effective.
(e) For the purpose
of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
SIGNATURES
Pursuant to
the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in
Tel Aviv, Israel
,
on August 8, 2014.
|
CELL SOURCE, INC.
|
|
|
|
Dated:
August 8
, 2014
|
By:
|
/s/
Itamar Shimrat
|
|
|
Itamar Shimrat
|
|
|
Chief Executive Officer, Chief Financial Officer and Director
|
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS:
That
the undersigned officers and directors of Cell Source, Inc., a Nevada corporation, do hereby constitute and appoint Itamar
Shimrat his or her true and lawful attorney-in-fact and agent with full power and authority to do any and all acts and things and
to execute any and all instruments which said attorney and agent, determine may be necessary or advisable or required to enable
said corporation to comply with the Securities Act of 1933, as amended, and any rules or regulations or requirements of the Securities
and Exchange Commission in connection with this Registration Statement. Without limiting the generality of the foregoing power
and authority, the powers granted include the power and authority to sign the names of the undersigned officers and directors in
the capacities indicated below to this Registration Statement, and to any and all instruments or documents filed as part of or
in conjunction with this Registration Statement or amendments or supplements thereof, including post-effective amendments, to this
Registration Statement or any registration statement relating to this offering to be effective upon filing pursuant to Rule 462(b)
under the Securities Act of 1933, and each of the undersigned hereby ratifies and confirms that said attorney and agent, shall
do or cause to be done by virtue thereof. This Power of Attorney may be signed in several counterparts.
IN
WITNESS WHEREOF, each of the undersigned has executed this Power of Attorney. In accordance with the requirements of the Securities
Act of 1933, as amended, this registration statement was signed by the following persons in the capacities and on the dates stated:
SIGNATURE
|
|
TITLE
|
|
DATE
|
|
|
|
|
|
|
By:
|
/s/ Yoram Drucker
|
|
Chairman
|
|
August 8, 2014
|
|
Yoram Drucker
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ Itamar Shimrat
|
|
Chief Executive Officer, Chief Financial Officer and Director
|
|
August 8, 2014
|
|
Itamar Shimrat
|
|
(Principal Executive, Financial and Accounting Officer)
|
|
|
|
|
|
|
|
|
By:
|
/s/ Ben Friedman
|
|
Director
|
|
August 8, 2014
|
|
Ben Friedman
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ Dennis Brown
|
|
Director
|
|
August 8, 2014
|
|
Dennis Brown
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ David Zolty
|
|
Director
|
|
August 8
, 2014
|
|
David Zolty
|
|
|
|
|
Cell Source (CE) (USOTC:CLCS)
Gráfico Histórico do Ativo
De Mai 2024 até Jun 2024
Cell Source (CE) (USOTC:CLCS)
Gráfico Histórico do Ativo
De Jun 2023 até Jun 2024