Note 10 – Stockholders’ Deficiency

Authorized Capital

Effective July 26, 2023, the Company amended the certificates of designation which established the Series A Convertible Preferred Stock and Series C Convertible Preferred Stock to increase the number of shares designated from 1,335,000 to 1,350,000 shares for the Series A Convertible Preferred Stock and from 500,000 to 1,000,000 shares for the Series C Convertible Preferred Stock.

On September 21, 2023, the Company’s Board of Directors approved the designation of 2,000,000 shares of the 10,000,000 authorized shares of preferred stock as Series B Convertible Preferred Stock, par value $0.001 per share.

As of December 31, 2024, the Company was authorized to issue 200,000,000 shares of common stock, par value of $0.001 per share, and 10,000,000 shares of preferred stock, par value of $0.001 per share. The holders of the Company’s common stock are entitled to one vote per share. The preferred stock was designated as follows: 1,350,000 shares of Series A Convertible Preferred Stock, 2,000,000 shares of Series B Convertible Preferred Stock and 1,000,000 shares of Series C Convertible Preferred Stock.

Common Stock

2024

During the year ended December 31, 2024, the Company issued 180,000 shares of the Company’s common stock with an issuance date fair value of $45,000 in connection with a legal settlement that was included within accrued compensation as of December 31, 2023.

During the year ended December 31, 2024, the Company issued 20,000 shares of the Company’s common stock to a certain investor in satisfaction with convertible note payable late fees. The shares had an issuance date fair value of $5,200 which was recognized immediately.

CELL SOURCE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During year ended December 31, 2024, the Company received gross proceeds of $640,626 from investors in connection with the issuance of an aggregate of 2,009,358 shares of its common stock and 10 ten-year warrants to purchase an aggregate of 2,009,358 shares of the Company’s common stock at an exercise price of $0.35 per share. The warrants had an issuance date fair value of $441,201 and were accounted for as derivative liabilities under the Company’s sequencing policy on the consolidated balance sheet as of December 31, 2024.

During the year ended December 31, 2024, certain investors converted an aggregate of 13,333 shares of Series C Convertible Preferred Stock into an aggregate of 133,333 shares of the Company’s common stock.

During the year ended December 31, 2024, the Company issued an aggregate of 1,000,000 immediately vested shares of the Company’s common stock to a consultant with a grant date fair value of $260,000 which was immediately recognized in the consolidated statement of operations.

During the year ended December 31, 2024, the Company issued 6,546 shares of common stock, respectively, in connection with the conversion of convertible notes payable and accrued interest. See Note 8, Notes Payable – Convertible Notes Payable for additional details.

See elsewhere in Note 10, Stockholders’ Deficiency for details of issuances of common stock in connection with accrued dividends.

2023

During the year ended December 31, 2023, certain investors converted an aggregate of 75,295 shares of Series C Convertible Preferred Stock into an aggregate of 752,960 shares of the Company’s common stock.

During the year ended December 31, 2023, the Company issued an aggregate of 1,150,000 immediately-vested shares of the Company’s common stock to consultants with a grant date fair value of $381,000 which was immediately recognized in the consolidated statement of operations.

During the year ended December 31, 2023, the Company issued 58,780 of common stock in connection with the conversion of convertible notes payable and accrued interest. See Note 8, Notes Payable – Convertible Notes Payable for additional details.

See Note 8, Notes Payable for details associated with the issuance of 176,000 shares of common stock with an issuance date fair value of $58,080 in connection with the extinguishment of a note payable during the year ended December 31, 2023.

See elsewhere in Note 10, Stockholders’ Deficiency for details of issuances of common stock in connection with accrued dividends.

Series A Convertible Preferred Stock

The Series A Convertible Preferred Stock has a stated value of $7.50 per share. The Series A Convertible Preferred Stock contains the following terms:

Conversion. Each share of Series A Convertible Preferred Stock is convertible into shares of common stock (subject to adjustment as provided in the related certificate of designation of preferences, rights and limitations) at the option of the holder at any time. The number of shares of common stock which are issuable upon conversion of the Series A Convertible Preferred Stock shall be equal to the number of shares of Series A Convertible Preferred Stock to be converted, multiplied by the stated value of $7.50 per share, divided by the conversion price in effect at the time of conversion, initially at $0.75 per share.

Mandatory Conversion. Series A Preferred Stock will automatically convert into common stock at the earlier of (a) any of the Company’s treatment candidates receiving Food and Drug Administration or European Medicines Agency approval; or (b) five years from the final closing of the offering.

Liquidation Preference. Upon any liquidation, dissolution or winding-up of the Company, the holders of Series A Preferred Stock will be entitled to be paid for each share of Series A Preferred Stock held thereby, but only to the extent the assets of the Company are legally available for distribution to its stockholders, in an amount equal to the stated value per share plus any accrued but unpaid dividends, before any distribution or payment may be made to the holders of any junior securities.

CELL SOURCE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Voting Rights. The holders of Series A Convertible Preferred Stock have the right to vote on any matter submitted to a vote of holders of common stock, voting together with the common stock as one class, on an as-converted basis.

Dividends. Holders of shares of Series A Convertible Preferred Stock will be entitled to receive cumulative dividends at an annual rate of 9% of the stated value. Dividends are payable semi-annually on June 30 and December 31, either by (i) issuance of shares of common stock at the rate of $0.75 per share of common stock or (ii) in cash, at the Company’s option.

During the year ended December 31, 2024, the Company accrued additional preferred dividends of $908,457 and issued 1,211,358 shares of common stock at $0.75 per share pursuant to the terms of the Series A Convertible Preferred Stock Certificate of Designation with fair values of $908,457 such that there was no accrued dividend payable as of December 31, 2024 related to the Series A Convertible Preferred Stock.

During the year ended December 31, 2023, the Company accrued additional preferred dividends of $905,975 and issued 1,208,054 shares of common stock at $0.75 per share pursuant to the terms of the Series A Convertible Preferred Stock Certificate of Designation with fair values of $905,975 such that there was no accrued dividend payable as of December 31, 2023 related to the Series A Convertible Preferred Stock.

Series B Convertible Preferred Stock

On October 30, 2023, the Company filed the Certificate of Designation with the Office of the Secretary of State for the State of Nevada, which established the Series B Convertible Preferred Stock. The Series B Convertible Preferred Stock has a stated value of $7.50 per share. The Series B Convertible Preferred Stock contains the following terms:

Conversion. Each share of Series B Convertible Preferred Stock is convertible into shares of common stock (subject to adjustment as provided in the related certificate of designation of preferences, rights and limitations) at the option of the holder at any time. The number of shares of common stock which are issuable upon conversion of the Series B Convertible Preferred Stock shall be equal to the number of shares of Series B Convertible Preferred Stock to be converted, multiplied by the stated value of $7.50 per share, divided by the conversion price in effect at the time of conversion, initially at $0.75 per share.

Mandatory Conversion. On the earlier of (i) October 30, 2027 or (ii) any of the Company’s treatment candidates receiving approval from the U.S. or European agencies, all of the outstanding shares of Series B Convertible Preferred Stock will automatically convert to common stock.

Liquidation Preference. In the event of the liquidation, dissolution or winding-up of the Company, the holders of Series B Preferred Stock will be entitled to be paid for each share of Series B Preferred Stock held thereby, but only to the extent the assets of the Company are legally available for distribution to its stockholders, in an amount equal to the stated value per share plus any accrued but unpaid dividends. The Series B Convertible Preferred Stock will rank senior to common stock and any other class of capital stock which does not expressly rank senior to or pari passu with the Series B Preferred Stock and will rank pari passu with the Series A and Series C Convertible Preferred Stock.

Voting Rights. The holders of Series B Convertible Preferred Stock have the right to vote on any matter submitted to a vote of holders of common stock, voting together with the common stock as one class, on an as-converted basis.

Dividends. Holders of shares of Series B Convertible Preferred Stock will be entitled to receive cumulative dividends at an annual rate of 10% of the stated value. Dividends are payable semi-annually on June 30 and December 31, commencing on December 31, 2023, either by (i) issuance of shares of common stock at the rate of $0.75 per share of common stock or (ii) in cash, at the Company’s option.

The Company determined that the Series B Convertible Preferred Stock was perpetual preferred stock.

Beginning in October 2023, the Company entered into subscription agreements with certain accredited investors in a private placement offering. Each unit, which is sold at a price of $7.50 per unit, consists of one (1) share of Series B Convertible Preferred Stock and a five-year warrant to purchase a certain number of shares of common stock at an exercise price of $0.75 per share. For every $100,000 of units purchased, the investor will receive warrants to purchase an aggregate of 150,000 shares of common stock.

CELL SOURCE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During the year ended December 31, 2024, the Company received gross proceeds of $1,151,000 from investors in connection with the issuance of an aggregate of 153,460 shares of its Series B Convertible Preferred Stock and 5 five-year warrants to purchase an aggregate of 1,726,500 shares of the Company’s common stock at an exercise price of $0.75 per share. The warrants and embedded conversion options were accounted for as derivative liabilities under the Company’s sequencing policy and had an aggregate issuance date fair value of $286,600.

During the year ended December 31, 2024, the Company issued an aggregate of 6,666 shares of its Series B Convertible Preferred Stock and 5 five-year warrants to purchase an aggregate of 50,000 shares of the Company’s common stock at an exercise price of $0.75 per share. Subsequent to December 31, 2024, the Company received proceeds of $50,000 related to this issuance. As of December 31, 2024, the $50,000 was recorded as a subscription receivable on the accompanying consolidated balance sheet and was collected in January 2025.

During the year ended December 31, 2024, the Company accrued preferred dividends of $138,062 and issued 183,627 shares of common stock at $0.75 per share pursuant to the terms of the Series B Convertible Preferred Stock Certificate of Designation with fair values of $137,707, such that there was $7,205 accrued dividend payable as of December 31, 2024 related to the Series B Convertible Preferred Stock.

During the year ended December 31, 2023, the Company sold an aggregate of 106,668 units to certain investors for net proceeds of $799,918 and issued 5 five-year warrants to purchase an aggregate of 1,200,000 shares of the Company’s common stock at an exercise price of $0.75 per share.

During the year ended December 31, 2023, the Company accrued preferred dividends of $6,795 and issued no shares of common stock at $0.75 per share pursuant to the terms of the Series B Convertible Preferred Stock Certificate of Designation, such that there was $6,795 accrued dividend payable as of December 31, 2023 related to the Series B Convertible Preferred Stock.

Series C Convertible Preferred Stock

The Series C Convertible Preferred Stock has a stated value of $7.50 per share. The Series C Convertible Preferred Stock contains the following terms:

Conversion. Each share of Series C Preferred Stock is convertible into shares of common stock (subject to adjustment as provided in the related certificate of designation of preferences, rights and limitations) at the option of the holder at any time. The number of shares of common stock which are issuable upon conversion of the Series C Preferred Stock shall be equal to the number of shares of Series C Preferred Stock to be converted, multiplied by the stated value of $7.50 per share, divided by the conversion price in effect at the time of conversion, initially at $0.75 per share.

Mandatory Conversion. On the earlier of (i) July 27, 2025 or (ii) any of the Company’s treatment candidates receiving approval from the U.S. or European agencies, all of the outstanding shares of Series C Preferred Stock will automatically convert to common stock.

Liquidation Preference. In the event of the liquidation, dissolution or winding-up of the Company, the holders of Series B Preferred Stock will be entitled to be paid for each share of Series C Preferred Stock held thereby, but only to the extent the assets of the Company are legally available for distribution to its stockholders, in an amount equal to the stated value per share plus any accrued but unpaid dividends. The Series C Preferred Stock will rank senior to common stock and any other class of capital stock which does not expressly rank senior to or pari passu with the Series C Preferred Stock and will rank pari passu with the Series A and Series B Preferred Stock.

Voting Rights. The holders of Series C Preferred Stock have the right to vote on any matter submitted to a vote of holders of common stock, voting together with the common stock as one class, on an as-converted basis.

Dividends. Holders of shares of Series C Preferred Stock will be entitled to receive cumulative dividends at an annual rate of 8% of the stated value. Dividends are payable semi-annually on June 30 and December 31, either by (i) issuance of shares of common stock at the rate of $0.75 per share of common stock or (ii) in cash, at the Company’s option.

During the year ended December 31, 2024, 13,333 shares of Series C Preferred Stock were converted into 133,333 shares of common stock at the shareholder’s election.

CELL SOURCE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During the years ended December 31, 2024 and 2023, the Company accrued additional preferred dividends of $328,614 and $315,915, respectively, and issued 463,220 and 403,250 shares of common stock, respectively, at $0.75 per share pursuant to the terms of the Series C Convertible Preferred Stock Certificate of Designation with fair values of $347,359 and $302,386, respectively, such that there was $0 and $18,745 accrued dividend payable as of December 31, 2024 and 2023, respectively, related to the Series C Convertible Preferred Stock.

During the years ended December 31, 2024 and 2023, the Company issued 13,333 and 110,001 shares of Series C Convertible Preferred Stock, respectively, in connection with conversions of notes payable into Series C Convertible Preferred Stock. See Note 8, Notes Payable – Convertible Notes Payable for additional details.

Equity Incentive Plan

On August 13, 2019, the Company’s Board of Directors approved the adoption of the Company’s 2019 Equity Incentive Plan (the “Plan”). A total of 7,900,000 shares of common stock were initially reserved for issuance under the Plan and the number of reserved shares increases on the first day of each year in an amount equal to the lesser of 3% of the number of shares of common stock outstanding on the last day of the preceding year or the amount determined by our Board of Directors. The Plan permits the Board of Directors to issue stock options, stock appreciation rights, restricted stock, restricted stock units, performance and other awards to employees, consultants and directors of the Company. As of December 31, 2024, a total of 12,235,772 shares of common stock were reserved for issuance under the Plan. Of this amount, as of December 31, 2024, a total of 5,303,768 shares were available for future issuance under the Plan. As of the date of filing, the Company’s shareholders have not approved the Plan.

Stock-Based Compensation

During the year ended December 31, 2024, the Company recognized stock-based compensation expense of $288,424 (consisting of $34,210 expense related to warrants (of which, $37,979 has been included within stockholder’s deficiency and $(3,769) which has been included within accrued compensation), and $254,214 of expense related to common stock (of which, $265,200 has been included within stockholder’s deficiency and $(10,986) has been included within accrued compensation). During the year ended December 31, 2023, the Company recognized stock-based compensation expense of $463,034 (consisting of $70,764 expense related to warrants (of which, $71,464 has been included within stockholder’s deficiency and $(700) which has been included within accrued compensation), and $392,270 of expense related to common stock (of which, $381,000 has been included within stockholder’s deficiency and $11,270 has been included within accrued compensation). See Note 6, Accrued Compensation for additional details.

During the year ended December 31, 2024, $288,424 of stock-based compensation expense was included within general and administrative expenses and $0 was included within research and development on the consolidated statement of operations. During the year ended December 31, 2023, $463,034 of stock-based compensation expense was included within general and administrative expenses and $0 was included within research and development on the consolidated statement of operations.

As of December 31, 2024, there was no unrecognized stock-based compensation expense.

Stock Warrants

During the year ended December 31, 2024, the Company entered into an advisory agreement with a certain advisor to perform independent advisory services in connection with business operations from January 5, 2024 to June 4, 2024. In consideration of services to be performed, the Company issued 5 five-year warrants to purchase 100,000 shares of common stock, which vest 20% monthly during the term of the agreement at an exercise price of $1.25 per share. The warrants had a grant date fair value of $6,590 which will be recognized over the vesting term.

During the years ended December 31, 2024 and 2023, the Company issued warrants to purchase an aggregate of 1,504,838 and 1,728,028 shares of common stock, respectively, in connection with notes payable. See Note 8, Notes Payable for additional details.

See Note 4, Fair Value and Note 11, Commitments and Contingencies for additional details.

CELL SOURCE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A summary of the warrant activity during the year ended December 31, 2024 is presented below:

Schedule of Warrant Activity 

Information regarding outstanding and exercisable warrants as of December 31, 2024 is as follows:

Schedule of Outstanding and Exercisable 

See Note 4, Fair Value for additional details related to valuation assumptions for warrants granted during the years ended December 31, 2024 and 2023.

Stock Options

There were no stock options granted during the year ended December 31, 2024.

CELL SOURCE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The expected term used is the contractual life of the instrument being valued. Since the Company’s stock has not been publicly traded for a sufficiently long period of time or with significant volume, the Company is utilizing an expected volatility based on a review of the historical volatilities, over a period of time, equivalent to the expected life of the instrument being valued, of similarly positioned public companies within its industry. The risk-free interest rate was determined from the implied yields from U.S. Treasury zero-coupon bonds with a remaining term consistent with the expected term of the instrument being valued.

A summary of the option activity during the year ended December 31, 2024 is presented below:

Summary of Stock Option Activity 

Information regarding outstanding and exercisable options as of December 31, 2024 is as follows:

Schedule of Outstanding and Exercisable 

CELL SOURCE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS