Annual Report for Fiscal Year Ending December 31, 2024 (Form 10-K)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

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 Annual Report on Form 10-K. Actual results may differ materially from any forward-looking statement.

Overview

We are a cell therapy company focused on immunotherapy. Since our inception, we have been involved with the development of proprietary immune system management technology licensed from Yeda, the commercial arm of the Weizmann Institute. We have recently shifted the focus of our research and development efforts to MD Anderson.

This technology addresses one of the most fundamental challenges within human immunology: how to tune the immune response such that it tolerates selected desirable foreign cells, but continues to attack all other (undesirable) targets. In simpler terms, a number of potentially life-saving treatments have limited effectiveness today because the patient's immune system rejects them. For example, while HSCT - hematopoietic stem cell transplantation (e.g. bone marrow transplantation) has become a preferred therapeutic approach for treating blood cell cancer, most patients do not have a matched family donor. Although matched unrelated donors and cord blood can each provide an option for such patients, haploidentical stem cell transplants (sourced from partially mismatched family members) are rapidly gaining favor as a treatment of choice. This is still a risky and difficult procedure primarily because of potential conflicts between host and donor immune systems and also due to viral infections that often follow even successful HSCT while the compromised new immune system works to reconstitute itself by using the transplanted stem cells. Today, rejection is partially overcome using aggressive immune suppression treatments that leave the patient exposed to many dangers by compromising their immune system.

The unique advantage of Cell Source technology lies in the ability to induce sustained tolerance of transplanted cells (or organs) by the recipient's immune system in a setting that requires only mild immune suppression, while avoiding the most common post-transplant complications. The scientific term for inducing such tolerance in a transplantation setting is chimerism, where the recipient's immune system tolerates the co-existence of the (genetically different) donor type and host (recipient) type cells. Attaining sustained chimerism is an important prerequisite to achieving the intrinsic GvL (graft versus leukemia) effect of HSCT and supporting the reconstitution of normal hematopoiesis (generation of blood cells, including those that protect healthy patients from cancer) in blood cancer patients. Preclinical data and initial clinical data show that Cell Source's Veto Cell technology (currently in a clinical trial in the US) can provide superior results in allogeneic (donor-derived) HSCT by allowing for haploidentical stem cell transplants under a mild conditioning regimen, while avoiding the most common post-transplant complications. Combining this with CAR (Chimeric Antigen Receptor) T cell therapy as a unified VETO CAR-T treatment, we plan to treat patients in relapse as well as those in remission and use the cancer killing power of CAR-T to protect the patient while their immune system fully reconstitutes, thus providing an end-to-end solution for blood cancer treatment by potentially delivering a fundamentally safer and more effective allogeneic HSCT: prevention of relapse; avoidance of GvHD; prevention of viral infections; and enhanced persistence of GvL effect. This means that the majority of patients will be able to find a donor, and will have access to a potentially safer procedure with higher long term survival rates than what either donor-derived HSCT or autologous CAR-T each on their own currently provide.

The ability to induce permanent chimerism (and thus sustained tolerance) in patients - which allows the transplantation to overcome rejection without having to compromise the rest of the immune system - may open the door to effective treatment of a number of severe medical conditions, in addition to blood cancers, which are characterized by this need. These include:

	●	The broader set of cancers, including solid tumors, that can potentially be treated effectively using genetically modified cells such as CAR-T cell therapy, but also face efficacy and economic constraints due to limited persistence based on immune system issues (i.e., the need to be able to safely and efficiently deliver allogeneic CAR-T therapy). Inducing sustained tolerance to CAR-T cells may bring reduced cost and increased efficacy by allowing for off-the-shelf (vs. patient-derived) treatments with more persistent cancer killing capability.
	●	Organ failure and transplantation. A variety of conditions can be treated by the transplantation of vital organs. However, transplantation is limited both by the insufficient supply of available donor organs and the need for lifelong, daily anti-reject treatments post-transplant. Haploidentical organ transplants, with sustained chimerism, have the potential to make life saving transplants accessible to the majority of patients, with the prospect of improved life quality and expectancy.
	●	Non-malignant hematological conditions (such as type one diabetes and sickle cell anemia) which could, in many cases, also be more effectively treated by stem cell transplantation if the procedure could be made safer and more accessible by inducing sustained tolerance in the stem cell transplant recipient.

Human Capital Resources

Other than our Chief Executive Officer, we currently do not have any full-time employees, but retain the services of independent contractors/consultants on a contract-employment basis.

Recent Developments

Bridge Funding

Subsequent to December 31, 2024, the Company received net proceeds of $200,000 from an investor and issued a note payable in the principal amount of $285,714 pursuant to a note purchase agreement which provides that the investor will loan an additional $800,000 in seven tranches upon the occurrence of certain events, including the completion by the Company of certain filings with the Securities Exchange Commission. If all tranches are funded, the aggregate principal amount of the notes issued pursuant to the Note Purchase Agreement will be $1,428,571. The note is secured by substantially all of the assets of the Company and is convertible into shares of the Company's common stock in the event of a default under the note at a conversion price equal to 65% of the trading price of the Company's common stock during the 20-trading day period prior to conversion. The notes were due on February 24, 2026. As of the date of this filing, this note was past due. The Company issued 1,714,286 shares of common stock (the "Origination Shares") and a warrant to purchase 571,429 shares of common stock at an exercise price of $0.25 per share to the investor pursuant to the terms of the note purchase agreement. If all tranches are funded, the Company will be required to issue warrants to purchase an additional 2,285,714 shares of common stock to the investor. The investor has been granted "piggyback" registration rights with respect to the Origination Shares and the shares issuable upon conversion of the notes and exercise of the warrants and rights to participate in future financings. The Company will be required to issue additional shares of common stock to the investor if the market value of the Origination Shares falls below $428,571.

Subsequent to December 31, 2024, the Company completed a private placement of original issue discount convertible notes payable in the aggregate principal amount of $1,875,000. The Company received net proceeds of $1,500,000 from the offering. The notes bear interest at a rate of 10% per annum and are convertible into shares of the Company's common stock at a conversion price equal to 90% of the lowest volume weighted average price of the common stock during the ten trading days prior to conversion. The notes become due upon the earlier of June 17, 2026 or the listing of the Company's common stock on the Nasdaq Capital Market or another national securities exchange. For each $100,000 invested, investors in the offering received a five-year warrant to purchase the Company's common stock at an exercise price of $0.40 per share. A total of 1,875,000 warrants were issued in the offering.

Preclinical Results and Clinical Results

After two years of intensive collaboration with Professor Zelig Eshhar, the inventor of CAR-T cell therapy, preclinical data confirmed that Veto Cells can markedly extend persistence of genetically modified T cells from the same donor and that genetically modified Veto Cells can effectively inhibit tumors expressing an antigen recognized by the transgenic T cell receptor. Furthermore, human Veto Cells transfected with CAR exhibit anti-tumor activity in-vitro without losing their veto activity. These preclinical results have formed the basis of our current development of a clinical protocol for allogeneic VETO CAR-T HSCT combined therapy for blood cancer treatment. Cell Source plans to submit this protocol for approval in 2025. Recent preclinical research has determined that Veto Cells can overcome rejection from both NK (natural killer) cells and T-cells, further enhancing their potential efficacy when used for off-the-shelf CAR-T cell therapy. The Phase 1/2 clinical trial at the University of Texas MD Anderson Cancer Center, using Cell Source's Anti-viral Veto Cells, has completed the first five treatment cohorts, with 15 patients each receiving a haploidentical HSCT under reduced intensity conditioning with Veto Cells. This trial has thus far shown that there has been no toxicity associated with the Veto Cells, with patients showing consistent stem cell engraftment, in the absence of severe GvHD. The study is expected to continue with additional cohorts of patients, using the current treatment protocol.

Private Placement of Series B Convertible 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 acquired, the investor will receive warrants to purchase an aggregate of 150,000 shares of common stock.

From October 2023 through the date of filing, the Company sold 308,126 units for gross proceeds of $2,311,000 and issued warrants to purchase 3,446,500 shares of the Company's common stock.

Risks and Uncertainties

On February 24, 2022, Russian military forces invaded Ukraine, and the length, impact, and outcome of the ongoing war in Ukraine is highly unpredictable. On October 7, 2023, Hamas terrorists infiltrated Israel's border with the Gaza Strip and conducted a series of attacks on civilian and military targets. Hamas has also launched extensive rocket attacks on Israeli population and industrial centers located along Israel's border with the Gaza Strip and in other areas within the State of Israel. These attacks have resulted in extensive deaths, injuries and kidnapping. Following the attack, Israel's security cabinet declared war against Hamas and a military campaign against these terrorist organizations commenced in parallel to their continued rocket and terror attacks. Although there is currently a cease fire in the Israel-Hamas conflict, no assurance can be given that the cease fire will continue. On February 28, 2026, United States and Israeli forces conducted a series of attacks in Iran, and Iran responded by launching retaliatory attacks on Israel and United States military bases in the Middle East. The intensity and duration of the United States/Israel war against Iran is difficult to predict. As a result of the Russia-Ukraine, Israel-Hamas and United States/Israel-Iran wars and other geopolitical and macroeconomic events, the global credit and financial markets have experienced volatility and disruptions.

As of December 31, 2024 and through the date of this filing, the Company considered the impact of these wars and other geopolitical and macroeconomic events on its business and operational assumptions and estimates and determined there were no material adverse impacts on the Company's consolidated results of operations and financial position.

Litigation

In January 2019, the holder of a promissory note in the principal amount of $250,000 due on March 16, 2016 instituted a collection action in the Supreme Court of the State of New York, County of New York. On June 12, 2019, the plaintiff served a motion for summary judgment through the Secretary of State which was heard on July 12, 2019 and granted. The Company contended that it was not given sufficient notice under the applicable statute and did not have an opportunity to oppose the motion. Judgment was entered in October 2019 in the amount of $267,680. The Company brought a motion to vacate based on the jurisdictional defect of the motion in not providing the required amount of time, but that motion was denied in February 2021 without properly addressing the jurisdictional issues raised by the Company. The Company appealed the denial and then filed a motion to Renew and Reargue the motion to vacate based on the Court's failure to address critical issues. That motion was also denied on April 15, 2021 without addressing the Company's arguments. The Company appealed the second denial as well and pursued both appeals in a consolidated manner so as to resolve all issues together. Each of the appeals was denied and there is no further opportunity to appeal. While the Company's motions were pending, the plaintiff commenced steps to collect judgment. During the year ended December 31, 2021, $103,088 of a $250,000 deposit made with the court by a third party on behalf of the Company was released to an officer of the court and has been accounted for as partial note repayment, with an additional $146,912 due under the note repaid by a release of the remaining deposit to an officer of the court during the year ended December 31, 2022, which was also accounted for as a note repayment. In August 2023, a supplemental judgment of $38,838 was entered against the Company. Inasmuch, as there were no further opportunities to appeal, in June 2024, the Company resolved this matter by making a final payment of $135,000 and the plaintiff agreed to cease the pursuit of additional sanctions against the Company and filed a satisfaction of judgment.

Tax Law Change

On July 4, 2025, the President signed into law significant federal tax legislation, H.R.1 (the "Tax Reform Act of 2025"). The legislation includes numerous changes to U.S. corporate income tax law, including but not limited to: permanent 100% bonus depreciation for qualified property, immediate expensing of domestic research and experimental expenditures, modifications to the limitation on business interest expense, increased Section 179 expensing limits, changes to the international tax regime, and expanded limitations on the deductibility of executive compensation under IRC Section 162(m). Most provisions are effective for tax years beginning after December 31, 2024, with certain transition rules and exceptions. The Company is currently evaluating the impact of the Tax Reform Act of 2025 on its consolidated financial statements. The effects of the new law, including remeasurement of deferred tax assets and liabilities and changes to current and future tax expense, will be reflected in the period of enactment and in future periods as additional guidance is issued and the Company completes its analysis.

Consolidated Results of Operations

Year Ended December 31, 2024 Compared with the Year Ended December 31, 2023

Research and Development

Research and development expense was $1,898,081 and $1,577,995 for the years ended December 31, 2024 and 2023, respectively, an increase of $320,086, or 20%. This increase is mainly attributable to patient enrollment milestones of $448,247 being achieved during the 2024 period, compared to one $105,505 enrollment milestone achieved in the 2023 period.

Loss on Legal Settlement

During the years ended December 31, 2024 and 2023, we recognized a loss on legal settlement of $0 and $142,600, respectively. The loss on legal settlement in 2023 was attributable to the issuance of a $50,000 convertible note payable, a five-year warrant to purchase 180,000 shares of the Company's common stock at an exercise price of $0.75 per share, and the issuance of 180,000 shares of the Company's common stock in satisfaction of unspecified damages for an alleged wrongful refusal to authorize the Company's transfer agent to remove restrictive legends from the shares held by the shareholder.

General and Administrative

General and administrative expense was $1,942,163 and $2,604,751 for the years ended December 31, 2024 and 2023, respectively, a decrease of $662,588, or 25%. This decrease is primarily attributable to decreases in legal expenses of $441,856, due to various legal matters that occurred in 2023, stock-based compensation expense of $142,545 and consulting expenses of $210,000, due to a decrease in various consulting services. This was partially offset by an increase in external expenses of $72,403, and payroll expense of $78,577.

Interest Expense

Interest expense for the years ended December 31, 2024 and 2023 was $778,386 and $668,117, respectively, an increase of $110,269, or 17%. This increase is primarily associated with an increase in the balance of interest-bearing notes outstanding during the 2024 period compared to the prior period.

Interest Expense - Amortization of Debt Discount

Amortization of debt discount was $309,914 and $380,569 for the years ended December 31, 2024 and 2023, respectively, a decrease of $70,655, or 19%. This decrease is primarily associated with a majority of the debt discount being fully amortized during 2023.

Change in Fair Value of Derivative Liability

For the years ended December 31, 2024 and 2023, we recognized a gain on the change in fair value of derivative liability of $398,009 and $10,900, respectively, an increase of $387,109. The change in fair value of derivative liability is attributable to the decrease in fair value of the Company's common stock during 2024.

Gain on Extinguishment of Note Payable

Gain on extinguishment of note payable was $17,893 and $41,920 for the years ended December 31, 2024 and 2023, respectively, a decrease of $24,027, or 57%. This decrease is primarily attributable to the exchange of a $100,000 note occurring during the 2023 period as compared to a $30,000 note during the 2024 period.

Liquidity and Going Concern

We measure our liquidity in a number of ways, including the following:

		December 31,
		2024				2023
Cash		$	74,631			$	22,203
Working capital deficiency		$	(18,537,836	)		$	(15,611,543	)

During the year ended December 31, 2024, we did not generate any revenues, had a net loss of $4,512,642 and had used cash in operations of $2,684,162. As of December 31, 2024, we had a working capital deficiency of $18,537,836 and an accumulated deficit of $46,180,030. As of December 31, 2024, and through the date of this filing, notes payable with principal amounts totaling $2,588,593 and $11,015,939, respectively, were past due. Subsequent to December 31, 2024 and as more fully described in Note 14, Subsequent Events, the Company received aggregate proceeds of $3,171,751 from the issuance of notes payable, $310,000 from the issuance of Series B Convertible Preferred Stock and $250,000 from the issuance of Common Stock. We will continue to incur net operating losses to fund operations. These conditions raise substantial doubt about our ability to continue as a going concern for at least one year from the date these financial statements are issued.

We are currently funding our operations on a month-to-month basis. Our ability to continue our operations is dependent on the execution of management's plans, which include the raising of capital through the debt and/or equity markets, until such time that funds provided by operations are sufficient to fund working capital requirements. We may need to incur additional liabilities with certain related parties to sustain our existence. If we were not to continue as a going concern, we would likely not be able to realize our assets at values comparable to the carrying value or the fair value estimates reflected in the balances set out in the preparation of our financial statements.

There can be no assurances that we will be successful in generating additional cash from equity or debt financings or other sources to be used for operations. Should we not be successful in obtaining the necessary financing to fund our operations, we would need to curtail certain or all operational activities and/or contemplate the sale of our assets, if necessary.

During the years ended December 31, 2024 and 2023, our sources and uses of cash were as follows:

Net Cash Used in Operating Activities

We experienced negative cash flows from operating activities for the years ended December 31, 2024 and 2023 in the amounts of $2,684,162 and $2,347,891, respectively. The net cash used in operating activities for the year ended December 31, 2024 was primarily due to cash used to fund a net loss of $4,512,642 adjusted for net non-cash expenses in the aggregate amount of $47,612, partially offset by $1,780,868 of net cash provided by changes in the levels of operating assets and liabilities. The net cash used in operating activities for the year ended December 31, 2023 was primarily due to cash used to fund a net loss of $5,321,212 adjusted for net non-cash expenses in the aggregate amount of $754,834, partially offset by $2,218,487 of net cash provided by changes in the levels of operating assets and liabilities.

Net Cash Provided by Financing Activities

Net cash provided by financing activities for the years ended December 31, 2024 and 2023 was $2,736,590 and $2,147,429, respectively. The net cash provided by financing activities during the year ended December 31, 2024 was attributable to $640,626 of proceeds from issuance of common stock and warrants, $1,151,000 of proceeds from the issuance of Series B Convertible Preferred Stock and warrants, approximately $846,637 of proceeds from the issuance of notes, related party and convertible notes payable, proceeds from advances payable and advances payable - related party of $159,675 partially offset by the repayment of a financing liability in the amount of $48,548 and $12,500 related to the repayment of notes payable. The net cash provided by financing activities during the year ended December 31, 2023 was attributable to $1,596,978 of proceeds from the issuance of convertible notes payable, $799,918 of proceeds received from Convertible Series B Preferred stock subscriptions, and $30,000 of proceeds from the issuance of notes payable, partially offset by $279,467 of repayments of financing liability.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Recently Issued Accounting Pronouncements

For recently issued accounting announcements, see "Recent Accounting Standards" in Note 3, Summary of Significant Accounting Policies in the notes to our consolidated financial statements included in this Annual Report on Form 10-K.

Critical Accounting Estimates

The preparation of financial statements and related disclosures are in conformity with U.S. GAAP. These accounting principles require us to make estimates and judgments that can affect the reported amounts of assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenue and expense during the periods presented. We believe that the estimates and judgments upon which we rely are reasonable based upon information available to us at the time that we make these estimates and judgments. To the extent that there are material differences between these estimates and actual results, our financial results will be affected. The accounting policies that reflect our more significant estimates and judgments and which we believe are the most critical to aid in fully understanding and evaluating our reported financial results are described below.

We consider an accounting estimate to be critical if: (i) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (ii) changes in the estimate that are reasonably likely to occur from period to period or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations.

Management has identified certain critical accounting estimates which are outlined below. In addition, there are other items within our financial statements that require estimation but are not deemed critical, as defined above. Changes in estimates used in these and other items could have a material impact on our financial statements.

Valuation of the Company's Common Stock Price

Since the Company's common stock historically was not actively traded on a public market, the fair value of the Company's restricted equity instruments is estimated by management based on observations of the sales prices of both restricted and freely tradable common stock, or instruments convertible into common stock. During the year ended December 31, 2024, the Company obtained a third-party valuation of its common stock as of December 31, 2024 and July 1, 2024 which was considered in management's estimation of fair value during the year ended December 31, 2024. The third-party valuation was performed in accordance with regulation of Section 409A of the Internal Revenue Code ("IRC") as well as FASB ASC Topic 718.

The independent appraisal utilized the market approach, specifically the Backsolve method. The Backsolve method utilizes the economics from a direct transaction in the Company's securities, specifically, issuances of convertible notes and Series B Convertible Preferred Stock during 2024 and 2023, in determining fair value. When applying the Backsolve method, the Company evaluated the below valuation inputs:

	1)	Total equity value of the Company
	2)	Application the Black-Scholes option pricing method ("OPM") to the various classes of convertible securities outstanding as of each of the valuation dates outlined above.
	3)	Application of a probability-weighted average present value to the various classes of various classes of convertible securities.
	4)	The total value of each share class was divided by the security's respective fully diluted shares outstanding, in order to calculate the per share value for each security on a marketable basis.

Under the OPM, it was determined the Company's common stock had a fair value of $0.19 and $0.28 per share as of December 31, 2024 and July 1, 2024, respectively, which included a discount for lack of marketability of 25%. Furthermore, the independent appraisal determined the Company's expected volatility was 70% and 75% as of December 31, 2024 and July 1, 2024 respectively, by evaluating historical and implied volatilities of guideline companies.

As of December 31, 2023 and July 1, 2023 under the OPM, it was determined the Company's common stock had a fair value of $0.26 and $0.34 per share, respectively, which included a discount for lack of marketability of 25%. Furthermore, the independent appraisal determined the Company's expected volatility was 65% and 80% as of December 31, 2023 and July 1, 2023 respectively, by evaluating historical and implied volatilities of guideline companies.