Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2023

Stock-Based Compensation

Because 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. The Company obtained a third-party valuation of its common stock as of July 1, 2023 and December 31, 2022. The third-party valuation was performed in accordance with the guidance outlined in the American Institute of Certified Public Accountants’ Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. The estimates used by management are considered highly complex and subjective. The Company anticipates that once its shares become more actively traded, the use of such estimates will no longer be necessary to determine the fair value of its common stock.

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 in determining fair value. The Backsolve method utilizes the Black-Scholes option pricing method (“OPM”) which allocated a probability-weighted present value to the Company’s convertible securities. The following steps were applied under the OPM:

●

Establishment of total enterprise or equity value;

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Analysis of equity rights for each class of security;

●

Selection of appropriate model for valuation purposes;

●

Determination of key valuation inputs; and

●

Computation of the fair value of the subject security.

Under the OPM, it was determined the Company’s common stock had a fair value of $0.34 and $0.33 as of July 1, 2023 and December 31, 2022, respectively, which included a discount for lack of marketability of 25%. Furthermore, the independent appraisal determined the Company’s expected volatility was 80% as of July 1, 2023 and December 31, 2022 by evaluating historical and implied volatilities of guideline companies.

Loss Per Share

Loss Per Share

The Company computes basic net loss per share by dividing net loss applicable to common stockholders by the weighted average number of common shares outstanding for the period and excludes the effects of any potentially dilutive securities. Diluted earnings per share includes the dilution that would occur upon the exercise or conversion of all dilutive securities into common stock using the “treasury stock” and/or “if converted” methods, as applicable.

The common stock equivalents associated with the following securities are excluded from the calculation of weighted average dilutive common shares because their inclusion would have been anti-dilutive:

	September 30,
	2023		2022

Options		6,932,004		6,932,004
Warrants		13,541,107		13,204,079
Convertible notes [1] [2]		13,493,270		1,529,683
Convertible preferred stock		18,743,053		18,249,713
Total		52,709,434		39,915,479

[1]

Convertible notes are assumed to be converted at the rate of $0.75 per common share, which is the conversion price as of September 30, 2023 and 2022. However, such conversion rates are subject to adjustment under certain circumstances such as stock splits and stock dividends, which may result in the issuance of common shares greater than the amount indicated.

[2]	As of September 30, 2022, excludes shares of common stock underlying convertible notes that are expected to become convertible into shares of Series B Convertible Preferred Stock since such stock had not been designated by the Company as of September 30, 2022.

CELL SOURCE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

- Definition

Disclosure of accounting policy for award under share-based payment arrangement. Includes, but is not limited to, methodology and assumption used in measuring cost.

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Topic 718
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Reference 2: http://www.xbrl.org/2003/role/disclosureRef
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Reference 3: http://www.xbrl.org/2003/role/disclosureRef
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Reference 4: http://www.xbrl.org/2003/role/disclosureRef
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Reference 6: http://www.xbrl.org/2003/role/disclosureRef
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Reference 9: http://www.xbrl.org/2003/role/disclosureRef
-Topic 718
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-Section 50
-Paragraph 2
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Reference 10: http://www.xbrl.org/2003/role/disclosureRef
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-Section 50
-Paragraph 2
-Subparagraph (f)(1)
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-Topic 718
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-Section 50
-Paragraph 2
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-URI https://asc.fasb.org//1943274/2147480429/718-10-50-2

+ Details

Cell Source, Inc. 10-Q