Cell Source, Inc. (Form: 10-K, Received: 04/14/2016 13:07:06)

CELL SOURCE, INC. & SUBSIDIARY

CONSOLIDATED FINANCIAL STATEMENTS

	Page

Report of Independent Registered Public Accounting Firm	F-1

Consolidated Balance Sheets as of December 31, 2015 and 2014	F-2

Consolidated Statements of Operations for the Years Ended December 31, 2015 and 2014	F-3

Consolidated Statements of Stockholders' Deficiency for the Years Ended December 31, 2015 and 2014	F-4

Consolidated Statements of Cash Flows for the Years Ended December 31, 2015 and 2014	F-5

Notes to Consolidated Financial Statements	F-6

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

and Stockholders of Cell Source, Inc. & Subsidiary

We have audited the accompanying consolidated balance sheets of Cell Source, Inc. and Subsidiary (the “Company”) as of December 31, 2015 and 2014 and the related consolidated statements of operations, stockholders’ deficiency and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated 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 audits 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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Cell Source, Inc. and Subsidiary, as of December 31, 2015 and 2014, and the consolidated results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has had recurring losses, and has a working capital and stockholders' deficit as of December 31, 2015. 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 consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Marcum LLP

Marcum LLP

New York, NY

April 14, 2016

F-1

CELL SOURCE, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

	December 31,
	2015			2014
Assets

Current Assets:
Cash	$	6,944		$	19,480
Prepaid expenses		71,882			75,424
Deferred financing costs, current portion		124,650			-
Other current assets		134,736			26,074
Total Current Assets		338,212			120,978

Deferred financing costs, non-current portion		28,282			-
Property and equipment, net		1,267			2,127

Total Assets	$	367,761		$	123,105



Liabilities and Stockholders' Deficiency

Current Liabilities:
Accounts payable and accrued expenses, current portion	$	586,485		$	233,869
Accounts payable and accrued expenses - related parties		214,629			285,415
Accrued compensation		324,672			968,849
Derivative liabilities		3,279,600			2,318,700
Notes payable, net of debt discount of $41,600 at December 31, 2015		708,400			-
Notes payable - related parties, net of debt discount of $19,300 at December 31, 2015		180,700			100,000
Convertible notes payable, current portion, net of debt discount of $89,900 at December 31, 2015		305,100			-
Advances payable		450,000			-
Total Current Liabilities		6,049,586			3,906,833

Convertible notes payable, non-current portion, net of debt discount of $260,550 at December 31, 2015		71,950			-
Accounts payable and accrued expenses, non-current portion		4,474			-

Total Liabilities		6,126,010			3,906,833

Commitments and contingencies		-			-

Stockholders' Deficiency:
Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued and outstanding at December 31, 2015 and 2014		-			-
Common stock, $0.001 par value; 200,000,000 shares authorized; 23,929,256 and 23,579,256 shares issued and outstanding at December 31, 2015 and 2014, respectively		23,929			23,579
Additional paid-in capital		4,720,417			4,191,183
Accumulated deficit		(10,502,595	)		(7,998,490	)
Total Stockholders' Deficiency		(5,758,249	)		(3,783,728	)

Total Liabilities and Stockholders' Deficiency	$	367,761		$	123,105

See Notes to the Consolidated Financial Statements

F-2

CELL SOURCE, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

	For the Year Ended
	December 31,
	2015			2014

Revenues	$	-		$	-

Operating Expenses
Research and development		392,925			806,157
Research and development - related party		829,970			1,012,464
Selling, general and administrative		1,097,580			2,235,445

Total Operating Expenses		2,320,475			4,054,066

Loss From Operations		(2,320,475	)		(4,054,066	)

Other Income (Expense)
Change in fair value of derivative liabilities		208,250			(2,739	)
Interest expense		(35,612	)		(674	)
Amortization of debt discount		(310,200	)		-
Amortization of deferred financing costs		(46,068	)		-

Total Other Expense		(183,630	)		(3,413	)

Net Loss	$	(2,504,105	)	$	(4,057,479	)

Net Loss Per Share
- Basic and Diluted	$	(0.10	)	$	(0.18	)

Weighted Average Number of Common Shares Outstanding
- Basic and Diluted		25,718,570			22,188,712

See Notes to the Consolidated Financial Statements

F-3

CELL SOURCE, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY

FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014

					Additional
	Common Stock				Paid-In			Accumulated
	Shares		Amount		Capital			Deficit			Total

Balance - December 31, 2013		14,155,262	$	14,155	$	3,229,522		$	(3,941,011	)	$	(697,334	)

Issuance of common stock and warrants for cash, net [1]		4,090,661		4,091		3,008,755			-			3,012,846

Reclassification of detachable warrants to derivative liabilities		-		-		(1,499,000	)		-			(1,499,000	)

Ticket to See, Inc. equity at the time of the reverse merger		5,000,000		5,000		(735,200	)		-			(730,200	)

Stock-based compensation:
- common stock		100,000		100		42,900			-			43,000

Cashless exercise of warrant		233,333		233		(233	)		-			-

Reclassification of derivative liabilities to equity		-		-		144,439			-			144,439

Net loss		-		-		-			(4,057,479	)		(4,057,479	)

Balance - December 31, 2014		23,579,256	$	23,579	$	4,191,183		$	(7,998,490	)	$	(3,783,728	)

Stock-based compensation:
- common stock		100,000		100		39,900			-			40,000
- warrants		-		-		418,184			-			418,184

Common stock issued as debt discount in connection with issuance of convertible notes payable		250,000		250		71,150			-			71,400

Net loss		-		-		-			(2,504,105	)		(2,504,105	)

Balance - December 31, 2015		23,929,256	$	23,929	$	4,720,417		$	(10,502,595	)	$	(5,758,249	)

[1] Net of $55,150 of issuance costs.

See Notes to the Consolidated Financial Statements

F-4

CELL SOURCE, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For The Year Ended
	December 31,
	2015			2014
Cash Flows From Operating Activities
Net loss	$	(2,504,105	)	$	(4,057,479	)
Adjustments to reconcile net loss to net cash used in operating activities:
Change in fair value of derivative liabilities		(208,250	)		2,739
Amortization of debt discount		310,200			-
Amortization of deferred financing costs		46,068			-
Depreciation		860			455
Stock-based compensation:
Common stock		100,000			43,000
Warrants		35,884			901,300
Changes in operating assets and liabilities:
Prepaid expenses		3,542			(75,424	)
Other current assets		(108,662	)		37,263
Accounts payable and accrued expenses		323,853			28,484
Net Cash Used in Operating Activities		(2,000,610	)		(3,119,662	)

Cash Flows From Investing Activities
Purchase of property and equipment		-			(2,582	)
Net Cash Used in Investing Activities		-			(2,582	)

Cash Flows From Financing Activities
Proceeds from issuance of notes payable		1,577,500			100,000
Payment of debt issuance costs		(39,426	)		-
Proceeds from issuance of common stock and warrants, net [1]		-			3,012,846
Proceeds from cash advances		450,000			-
Net Cash Provided by Financing Activities		1,988,074			3,112,846

Net Decrease In Cash		(12,536	)		(9,398	)

Cash - Beginning		19,480			28,878

Cash - Ending	$	6,944		$	19,480

Supplemental Disclosures of Cash Flow Information:
Non-cash investing and financing transactions:
Reclassification of warrants to derivative liabilities	$	482,300		$	1,499,000
Warrants and conversion options issued in connection with issuance of notes payable	$	650,150		$	-
Reclassification of derivative liability to equity	$	-		$	144,439
Accrued deferred financing costs	$	159,574		$	-
Ticket to See, Inc. equity at the time of the reverse merger	$	-		$	730,200
Common stock issued in connection with issuance of notes payable	$	71,400		$	-

[1] Net of $55,150 of equity issuance costs paid during the year ended December 31, 2014.

See Notes to the Consolidated Financial Statements

F-5

CELL SOURCE, INC. & SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Business Organization and Nature of Operations

Organization and Operations

Cell Source, Inc. (“CSI” or the “Company”) is a Nevada corporation formed on June 6, 2012 that is the parent company of Cell Source Limited, which was founded in Israel in 2011 in order to commercialize a suite of inventions relating to certain cancer treatments. Cell Source Limited’s target indications include treatment of lymphoma, multiple myeloma and B-cell chronic lymphocytic leukemia (“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. Cell Source Limited’s lead prospective product is its patented Veto Cell immune system management technology, which is an immune tolerance biotechnology that enables the selective blocking of immune responses. Cell Source Limited’s Veto Cell immune system management technology is based on technologies patented, owned, and licensed to Cell Source Limited by Yeda Research and Development Company Limited, an Israeli corporation ("Yeda").

Share Exchange and Reorganization

On May 7, 2014, the Board of Directors and the majority stockholder of Ticket to See, Inc. ("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, which 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.

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, which 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.

On June 27, 2014, CSI issued five-year warrants to purchase an aggregate of 2,000,000 shares of common stock at a price of $0.75 per share to consultants in exchange for consulting services previously provided to the Company. The exercise price issuable upon the exercise of the warrants will be subject to adjustment in the event that the Company issues any shares of common stock at a price lower than the exercise price of the warrants. Pursuant to the provision, at the date of issuance, the Company recorded these warrants as derivative liabilities at their fair value of $730,200. Any changes in the fair value of the warrants will be recognized in the Company’s consolidated statements of operations in the period in which such change occurs.

On June 30, 2014 (the “Closing Date”), CSI entered into and closed a Share Exchange Agreement (the “Share Exchange Agreement”) with Cell Source Limited and 100% of the shareholders of Cell Source Limited (the “CSL Shareholders”) whereby Cell Source Limited became the wholly-owned subsidiary of CSI (the "Share Exchange"), and whereby the CSL Shareholders, transferred to the Company all 18,245,923 outstanding shares of Cell Source Limited’s ordinary shares (“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 23,245,923 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 at $0.75 per share (the “Company Warrants”), which Company Warrants contain substantially similar terms as the CSL Warrants. In addition, outstanding seven-year warrants to acquire 2,043,835 CSL Ordinary Shares at $0.001 per share were exchanged for warrants to purchase shares of Company Common Stock at $0.001 per share (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.

F-6

CELL SOURCE, INC. & SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Business Organization and Nature of Operations – Continued

Share Exchange and Reorganization - Continued

For accounting purposes, the Share Exchange was treated as a reverse merger or recapitalization of Cell Source Limited, the accounting acquirer, because the Company shareholders own the majority of CSI’s outstanding common stock following the transaction and exercise significant influence over the operating and financial policies of the consolidated entity. CSI 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.

Note 2 – Going Concern and Management Plans

The Company has not generated any revenues, has recurring net losses, a working capital deficiency as of December 31, 2015 of approximately $5,711,000, and used cash in operations of approximately $2,001,000 and $3,120,000 for the years ended December 31, 2015 and 2014, respectively. In addition, as of December 31, 2015, the Company had an accumulated deficit of approximately $10,503,000. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

Subsequent to December 31, 2015, the Company has raised an aggregate of $990,000 through debt financing. See Note 12 – Subsequent Events for additional details.

The accompanying consolidated financial statements have been prepared in conformity with U.S. GAAP, which contemplate continuation of the Company as a going concern and the realization of assets and satisfaction of liabilities in the normal course of business. The ability of the Company to continue its 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. If the Company were not to continue as a going concern, it would likely not be able to realize 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 consolidated financial statements.

There can be no assurances that the Company will be successful in generating additional cash from the equity/debt markets or other sources to be used for operations. The consolidated financial statements do not include any adjustments relating to the recoverability of assets and classification of assets and liabilities that might be necessary. Based on the Company’s current resources, the Company will not be able to continue to operate without additional immediate funding. 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 – Summary of Significant Accounting Policies

Principles of Consolidation

For June 30, 2014 and forward, the Company’s financial statements are consolidated and include the accounts of CSI and Cell Source Limited. All significant intercompany transactions have been eliminated in the consolidation. Prior to June 30, 2014, the financial statements presented are those of Cell Source Limited.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP 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 consolidated financial statements in the period that they are determined to be necessary. Actual results could differ from those estimates and assumptions.

F-7

CELL SOURCE, INC. & SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3 – Summary of 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, 2015 and 2014, the Company did not have any cash equivalents.

Property and Equipment

Property and equipment is stated at cost, net of accumulated depreciation which is recorded using the straight line method at a rate sufficient to charge the cost of depreciable assets to operations over the estimated useful life, which is 3 years. Maintenance and repairs are charged to operations as incurred. As of December 31, 2015 and 2014, accumulated depreciation was $1,315 and $455, respectively. During the years ended December 31, 2015 and 2014, depreciation expense was $860 and $455, respectively.

Income Taxes

The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of items that have been included or excluded in the financial statements or tax returns. Deferred tax assets and liabilities are determined on the basis of the difference between the tax basis of assets and liabilities and their respective financial reporting amounts (“temporary differences”) at enacted tax rates in effect for the years in which the temporary differences are expected to reverse.

The Company adopted the provisions of Accounting Standards Codification (“ASC”) Topic 740-10, which prescribes a recognition threshold and measurement process for financial statements 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.

Management has evaluated and concluded that there were no material uncertain tax positions requiring recognition in the Company’s consolidated financial statements as of December 31, 2015 and 2014. The Company does not expect any significant changes in its unrecognized tax benefits within twelve months of the reporting date.

The Company’s policy is to classify assessments, if any, for tax related interest as interest expense and penalties as general and administrative expenses in the consolidated statements of operations. There were no amounts accrued for interest or penalties for the years ended December 31, 2015 and 2014.

Research and Development Costs

Research and development costs are expensed as they are incurred and consist of salaries, 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.

Loss Per Share

The Company computes basic net loss per share by dividing net loss 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. Weighted average shares outstanding for the years ended December 31, 2015 and 2014 includes the weighted average impact of warrants to purchase an aggregate of 2,043,835 shares of common stock because their exercise price was determined to be nominal.

F-8

CELL SOURCE, INC. & SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3 – Summary of Significant Accounting Policies - Continued

Loss Per Share - Continued

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:

	December 31,
	2015		2014

Warrants		11,074,324		6,459,324
Convertible notes		2,166,331		-
		13,240,655		6,459,324

Deferred Financing Costs

The Company has recorded deferred financing costs as a result of fees incurred by the Company in conjunction with its debt financing activities. These costs are amortized using the interest method over the shorter of (a) the term of the related debt or (b) the expected conversion date of the debt into equity instruments. As of December 31, 2015, there was $46,068 of accumulated amortization of deferred financing costs and $152,932 of unamortized deferred financing costs on the accompanying consolidated balance sheet.

Stock-Based Compensation

The Company measures the cost of services received in exchange for an award of equity instruments based on the fair value of the award. For non-employees, the fair value of the award is generally re-measured on financial reporting dates and vesting dates until the service period is complete. The fair value amount is then recognized over the period the services are required to be provided in exchange for the award, usually the vesting period. 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 based on the historical observations of cash prices paid for the Company's common stock.

Derivative Financial Instruments

The fair value of an embedded conversion option that is convertible into a variable amount of shares and warrants that include price protection reset provision features are deemed to be “down-round protection” and, therefore, do not meet the scope exception for treatment as a derivative under ASC 815 “Derivatives and Hedging”, 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 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. As a result of entering into warrant agreements, for which such instruments contained a variable conversion feature with no floor, the Company has adopted a sequencing policy in accordance with ASC 815-40-35-12 whereby all future instruments may be classified as a derivative liability with the exception of instruments related to share-based compensation issued to employees or directors.

The Black-Scholes option valuation model was used to estimate the fair value of the warrants and conversion options. The model includes subjective input assumptions that can materially affect the fair value estimates. The Company determined the fair value of the Binomial Lattice Model and the Black-Scholes Valuation Model to be materially the same. The expected volatility is estimated based on the most recent historical period of time equal to the weighted average life of the warrants.

Conversion options are recorded as debt discount and are amortized as interest expense over the life of the underlying debt instrument.

F-9

CELL SOURCE, INC. & SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3 – Summary of Significant Accounting Policies - Continued

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.

The Company recorded approximately $2,000 and $32,000 of transaction losses for the years ended December 31, 2015 and 2014, respectively, which have been included within general and administrative expenses in the accompanying consolidated statements of operations.

Comprehensive Income (Loss)

The Company reports comprehensive income (loss) and its components in its consolidated 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. As of December 31, 2015, the exchange rate between U.S. Dollars and Israeli Shekel was U.S. $1.00 = NIS 3.8968, and the weighted average exchange rate for the year then ended was U.S. $1.00 = NIS 3.8785. As of December 31, 2014, the exchange rate between U.S. Dollars and Israeli Shekel was U.S. $1.00 = NIS 3.9041, and the weighted average exchange rate for the year then ended was U.S. $1.00 = NIS 3.5715.

Reclassifications

Certain prior period amounts have been reclassified for comparative purposes to conform to the fiscal 2015 presentation. These reclassifications have no impact on the previously reported net loss.

Recent Accounting Standards

In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-03, “Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs” (“ASU 2015-03”). ASU 2015-03 amends the existing guidance to require that debt issuance costs be presented in the balance sheet as a deduction from the carrying amount of the related debt liability instead of as a deferred charge. ASU 2015-03 is effective on a retrospective basis for annual and interim reporting periods beginning after December 15, 2015, but early adoption is permitted. The Company does not anticipate that the adoption of this standard will have a material impact on its consolidated financial statements.

In November 2015, the FASB issued ASU No. 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes” (“ASU 2015-17”). The FASB issued this ASU as part of its ongoing Simplification Initiative, with the objective of reducing complexity in accounting standards. The amendments in ASU 2015-17 require entities that present a classified balance sheet to classify all deferred tax liabilities and assets as a noncurrent amount. This guidance does not change the offsetting requirements for deferred tax liabilities and assets, which results in the presentation of one amount on the balance sheet. Additionally, the amendments in this ASU align the deferred income tax presentation with the requirements in International Accounting Standards (IAS) 1, Presentation of Financial Statements. The amendments in ASU 2015-17 are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company does not anticipate that the adoption of this standard will have a material impact on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases. The ASU will also require new qualitative and quantitative disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating ASU 2016-02 and its impact on its consolidated financial statements.

The Company has evaluated all new accounting standards that are in effect and may impact its consolidated 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.

F-10

CELL SOURCE, INC. & SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3 – Summary of Significant Accounting Policies - Continued

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 have required adjustment or disclosure in the consolidated financial statements, except as disclosed in Note 12.

Note 4 - Fair Value

The Company determines the estimated fair value of amounts presented in these consolidated 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, 2015 and 2014, 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 directly or indirectly observable inputs. These inputs include quoted prices for similar assets and liabilities in active markets as well as other inputs such as interest rates and yield curves that are observable at commonly quoted intervals.

Level 3 - Inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related asset or liability.

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.

F-11

CELL SOURCE, INC. & SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 - Fair Value – Continued

The following table summarizes the valuation of the Company’s derivatives by the above fair value hierarchy levels as of December 31, 2015 and 2014 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)

Accrued compensation	$	60,000	$	-	$	-	$	60,000
Derivative liability		3,279,600		-		-		3,279,600

Balance - December 31, 2015	$	3,339,600	$	-	$	-	$	3,339,600

Accrued compensation	$	901,300	$	-	$	-	$	901,300
Derivative liability		2,318,700		-		-		2,318,700

Balance - December 31, 2014	$	3,220,000	$	-	$	-	$	3,220,000

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 shown in the above table consist of warrants with “down-round protection”, as the Company is unable to determine if it will have sufficient authorized common stock to settle such arrangements, warrants deemed to be derivative liabilities according to the Company’s sequencing policy in accordance with ASC 815-40-35-12, the conversion option of convertible notes payable and an accrued obligation to issue warrants to certain founders of Cell Source Limited, which such warrants were issued as of December 31, 2015.

Assumptions utilized in the valuation of Level 3 liabilities are described as follows:

	For the Years Ended
	December 31,
	2015			2014

Risk-free interest rate		0.14% - 1.93	%		1.38% - 1.73	%
Expected term (years)		0.04 - 6.50			3.83 - 5.00
Expected volatility		159% - 172	%		164% - 172	%
Expected dividends		0.00	%		0.00	%

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.

F-12

CELL SOURCE, INC. & SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 - Fair Value – Continued

The following table provides a summary of the changes in fair value, including net transfers in and/or out, of all Level 3 liabilities measured at fair value on a recurring basis using unobservable inputs during the years ended December 31, 2015 and 2014:

	Accrued			Derivative
	Compensation			Liability			Total

Balance - December 31, 2013	$	-		$	231,200		$	231,200
Accrual of warrant obligation		901,300			-			901,300
Change in fair value		-			2,739			2,739
Exercise of warrants		-			(144,439	)		(144,439	)
Issuance of warrants and conversion options		-			2,229,200			2,229,200

Balance - December 31, 2014	$	901,300		$	2,318,700		$	3,220,000
Issuance of warrants and conversion options		-			686,850			686,850
Accrual of warrant and common stock obligation		110,684			-			110,684
Change in fair value		(51,500	)		(208,250	)		(259,750	)
Reclassification to equity upon issuance		(418,184	)		-			(418,184	)
Reclassification to derivative liability upon issuance		(482,300	)		482,300			-

Balance - December 31, 2015	$	60,000		$	3,279,600		$	3,339,600

The Company’s significant financial instruments such as cash, other current assets, accounts payable, accrued expenses and notes payable were deemed to approximate fair value due to their short term nature.

On October 28, 2013, as a result of entering into warrant agreements, for which such instruments contained a variable conversion feature with no floor, the Company has adopted a sequencing policy in accordance with ASC 815-40-35-12, whereby these and all future instruments may be classified as a derivative liability, with the exception of instruments related to share-based compensation issued to employees or directors. As of December 31, 2015 and 2014, derivative liabilities valued at $3,279,600 and $2,318,700, respectively, were comprised of warrants to purchase an aggregate of 9,254,324 and 6,459,324 shares of common stock, respectively, and conversion options which, as of December 31, 2015, were convertible into an aggregate of 2,166,331 shares of common stock and warrants to purchase an aggregate of 815,676 shares of common stock.

On November 10, 2014, in connection with the effectiveness of the registration statement, the Company became obligated to issue to certain founders of Cell Source Limited five-year warrants to purchase an aggregate of 3,000,000 shares of common stock at an exercise price of $0.75 per share. As a result, during the year ended December 31, 2014, the Company accrued for the value of the obligation, which was the value of the warrants as computed using the Black Scholes option pricing model to be an aggregate of $901,300, which was recorded as stock-based compensation expense in the consolidated statements of operations and included in accrued compensation in the consolidated balance sheet as of December 31, 2014. During the year ended December 31, 2015, the Company issued the warrants to purchase an aggregate of 3,000,000 shares of common stock, of which, warrants to purchase an aggregate of 1,300,000 shares of common stock issued to employees with an issuance date value of $367,500 were reclassified to equity and warrants to purchase an aggregate of 1,700,000 shares of common stock issued to non-employees with an issuance date value of $482,300 were reclassified to derivative liability.

F-13

CELL SOURCE, INC. & SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 - Fair Value – Continued

Of the warrants to purchase an aggregate of 3,000,000 shares of common stock issued in 2015, warrants to purchase an aggregate of 2,400,000 shares of common stock contain a provision that provides the Company with an option, prior to the expiration date, to redeem all of the warrants then outstanding upon not less than thirty (30) days nor more than (60) days notice to the applicable holder, at a redemption price of $0.01 per share, subject to the conditions that: (i) there is an effective registration statement covering the resale of the underlying shares of common stock and (ii) the common stock has traded for twenty (20) consecutive days with a closing price of at least $2.50 per share with an average trading volume of 100,000 shares per day.

The Company recorded the value of the warrant obligation, which, using the Black Scholes option pricing model, was determined to be an aggregate of $0 and $901,300, respectively, which was a component of accrued compensation in the consolidated balance sheets as of December 31, 2015 and 2014, respectively. During the years ended December 31, 2015 and 2014, the Company recorded a credit of $51,500 and $0, to stock-based compensation related to the change in value of the warrant obligation.

As of December 31, 2015, the Company had an obligation to issue 150,000 shares of common stock to a service provider. The shares had a fair value of $60,000, which was a component of accrued compensation in the consolidated balance sheet as of December 31, 2015 and was included within stock-based compensation expense during the year ended December 31, 2015.

See Note 6 – Notes Payable and Note 11 – Commitments and Contingencies for additional details associated with the issuance of warrants which were deemed to be derivative liabilities.

Note 5 – Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consisted of the following:

	December 31,
	2015		2014

Accrued research and development	$	186,815	$	79,155
Accrued legal fees		216,956		75,200
Accrued other professional fees		75,164		34,839
Accrued director compensation		12,000		9,000
Accrued Scientified Advisory Board compensation		31,000		-
Accrued interest, current portion		25,139		-
Other accrued expenses		39,411		35,675
Accounts payable and accrued expenses, current portion		586,485		233,869
Non-current portion of accrued interest		4,474		-
Total accounts payable and accrued expenses	$	590,959	$	233,869

Note 6 – Notes Payable

Non-Convertible Notes

On March 26, 2015, the Company issued one-year notes payable in the aggregate principal amount of $500,000. The notes are non-interest bearing. The notes must be prepaid in whole from the proceeds of any closing after the issuance date, of any offering or offerings pursuant to which the Company receives aggregate gross proceeds greater than or equal to $3,000,000. In consideration of the loans, four-year warrants to purchase an aggregate of 500,000 shares of common stock at an exercise price of $0.75 per share, with an aggregate issuance date value of $177,200, were issued by the Company to the purchasers of the notes payable and were recorded as a debt discount under the residual value method. In connection with the Company’s sequencing policy, the warrants were determined to be derivative liabilities. See Note 4 – Fair Value for additional details. The effective annual interest rate of the notes is 35%. Prior to the expiration date, the Company shall have the option to redeem the warrants then outstanding upon not less than thirty (30) days nor more than (60) days notice to the applicable holder, at a redemption price of $0.01 per share, subject to the conditions that: (i) there is an effective registration statement covering the resale of the underlying shares of common stock and (ii) the common stock has traded for twenty (20) consecutive days with a closing price of at least $2.50 per share with an average trading volume of 100,000 shares per day. See Note 12 – Subsequent Events – Notes Payable for additional details.

F-14

CELL SOURCE, INC. & SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6 – Notes Payable - Continued

Non-Convertible Notes – Continued

On May 15, 2015, the Company issued a four-month note payable in the principal amount of $250,000. The note bears interest at a rate of 12% per annum. In consideration of the loan, a four-year warrant to purchase 250,000 shares of common stock at an exercise price of $0.75 per share, with an issuance date fair value of $88,600, was issued by the Company to the purchaser of the note payable and was recorded as a debt discount under the residual value method. In connection with the Company’s sequencing policy, the warrant was determined to be a derivative liability. See Note 4 – Fair Value for additional details. Prior to the expiration date, the Company shall have the option to redeem the warrants then outstanding upon not less than thirty (30) days nor more than (60) days notice to the holder, at a redemption price of $0.01 per share, subject to the conditions that: (i) there is an effective registration statement covering the resale of the underlying shares of common stock and (ii) the common stock has traded for twenty (20) consecutive days with a closing price of at least $2.50 per share with an average trading volume of 100,000 shares per day. On November 12, 2015, the Company entered into a letter agreement with the lender to extend the maturity date of the note to December 31, 2015. See Note 12 – Subsequent Events – Notes Payable for additional details.

See Note 8 – Related Parties for details related to non-convertible notes issued to the Company’s Chief Executive Officer (“CEO”).

Convertible Notes

Other Convertible Notes

On July 24, 2015, the Company issued one-year convertible promissory notes with an aggregate principal amount of $145,000. In consideration of the loans, four-year warrants to purchase an aggregate of 145,000 shares of common stock at an exercise price of $0.75 per share, were issued by the Company to the purchasers of the notes payable and were recorded as a debt discount under the residual value method. In connection with the Company’s sequencing policy, the $61,500 aggregate issuance date fair value of the warrants and conversion options of the notes were determined to be derivative liabilities. See Note 4 – Fair Value for additional details. The notes shall not bear interest for the initial ninety (90) days from issuance, but beginning on the ninety-first (91 st ) day, each note shall bear interest at ten percent (10%) per annum, which interest will accrue on a daily simple interest basis and be due and payable on the maturity date. Each note contains a mandatory prepayment provision that the principal and accrued but unpaid interest must be prepaid, without premium or penalty, in whole, from the proceeds of any closing occurring after the original issuance date, of any offering or offerings of the securities of the Company pursuant to which the aggregate gross proceeds received by the Company is greater than or equal to $3,000,000. On or after the sixteenth (16 th ) day following the maturity date, the holder of each note will have the option to convert all or part of the outstanding principal and accrued but unpaid interest into shares of common stock, at a conversion price equal to the lesser of (i) $0.75; or (ii) seventy percent (70%) of the average daily volume weighted average price (“VWAP”) of common stock for the twenty (20) trading days prior to the maturity date. However, the Company shall not effect any conversion of a note to the extent that after giving effect to such conversion, an investor would beneficially own in excess of 4.99% of the issued and outstanding shares of common stock of the Company. Prior to the expiration date of the warrants, the Company has the option to redeem all warrants outstanding for a $0.01 per share upon not less than thirty (30) days notice nor more than sixty (60) days notice to the holder of the warrant, provided that at the time of delivery of such notice (i) there is an effective registration statement covering the resale of the Warrant Shares, and (ii) the average trading price of the Company’s common stock, or shares into which the common stock have been exchanged, for each of the twenty (20) consecutive trading days prior to the date of the notice of redemption is at least $2.50, as proportionately adjusted to reflect any stock splits, stock dividends, combination of shares or like events, with an average daily trading volume during such period of no less than 100,000 shares. The Company shall not effect any exercise of a Warrant to the extent that after giving effect to such exercise, an Investor would beneficially own in excess of 4.99% of the issued and outstanding shares of Common Stock of the Company.

On October 7, 2015, the Company issued one-year convertible notes payable in the aggregate principal amount of $250,000. The notes bear interest at a rate of 6% per annum. For a period of fifteen (15) business days beginning on the maturity date, at the option of the holder, the principal and any accrued and unpaid interest may be converted into common stock at a conversion price of $0.75 per share. In consideration of the loans, an aggregate of 250,000 shares of common stock, with an aggregate issuance date value of $71,400, were issued by the Company to the purchasers of the notes payable and were recorded as a debt discount with a corresponding credit to equity. In connection with the Company’s sequencing policy, the conversion options of the notes, with an aggregate issuance date value of $600, were determined to be derivative liabilities. See Note 4 – Fair Value for additional details.

F-15

CELL SOURCE, INC. & SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6 – Notes Payable – Continued

Convertible Notes – Continued

10% Convertible Note Offering

During November 2015, the Company closed on an aggregate of $332,500 in principal amount of convertible notes to investors, which are payable eighteen (18) months from the date of issuance (the “Maturity Date”) and bear interest at a rate of 10% per annum (the “10% Convertible Notes”). The 10% Convertible Notes shall be automatically converted into shares of the Company’s common stock upon the earlier of (i) the closing of an offering of equity securities pursuant to which the Company receives an aggregate of at least $5,000,000 in gross proceeds (“Qualified Financing”); (ii) the closing of a strategic transaction (including but not limited to the Company’s entry into a joint venture or partnership agreement or the sublicensing of the Company’s intellectual property) pursuant to which the Company, directly or indirectly, receives, or expects to receive within eighteen months, cash, assets or other consideration with a total aggregate value of at least $4,000,000 (“Strategic Transaction”); or (iii) the Maturity Date of the 10% Convertible Notes.

In the event the 10% Convertible Notes are converted upon the occurrence of a Qualified Financing (the “QF Conversion Shares”), the conversion price of the 10% Convertible Notes shall be the lesser of (i) seventy percent (70%) of the price per share or per unit (assuming the unit includes one share of common stock or the price per unit divided by the number of shares of common stock underlying such unit) at which the Company sells its securities in a Qualified Financing; or (ii) $0.75. The QF Conversion Shares shall be subject to a prohibition from any sale, pledge or transfer for a period of six (6) months from the date of the closing on which the Company generates aggregate gross proceeds under the Qualified Financing of at least $5,000,000. In the event the 10% Convertible Notes are converted upon the occurrence of a Strategic Transaction (the “ST Conversion Shares”), the conversion price of the 10% Convertible Notes shall be equal to $0.75. In addition, upon conversion of the 10% Convertible Notes following the occurrence of a Qualified Financing or a Strategic Transaction, each holder of a 10% Convertible Note shall automatically receive five-year warrants to purchase that number of shares of common stock into which the 10% Convertible Notes are convertible and such warrants shall have an exercise price equal to one hundred ten percent (110%) of the per-share or per unit (assuming the unit includes one share of common stock or the price per unit divided by the number of shares of common stock underlying such unit) at which the Company sells its securities in a Qualified Financing or $0.825 in the case of a Strategic Transaction, as applicable. The ST Conversion Shares shall be subject to a prohibition from any sale, pledge or transfer for a period of six (6) months from the date of the closing of a Strategic Transaction. In the event the 10% Convertible Notes are automatically converted upon the Maturity Date, the conversion price of the 10% Convertible Notes shall be equal to the quotient obtained by dividing $15 million by the aggregate number of outstanding shares of the common stock, measured on a fully-diluted basis, excluding certain shares, on the date immediately preceding the Maturity Date (the “Maturity Conversion Price”). In addition, in the event of an automatic conversion of the 10% Convertible Notes upon the Maturity Date, the holder shall automatically receive five-year warrants to purchase that number of common stock into which the 10% Convertible Notes are convertible and such warrants shall have an exercise price equal to the Maturity Conversion Price.

In connection with the Company’s sequencing policy, the conversion options of the notes were determined to be derivative liabilities. The $287,350 aggregate issuance date fair value was recorded as a debt discount and will be amortized over the term of the notes. See Note 4 – Fair Value for additional details.

Summary

During the years ended December 31, 2015 and 2014, the Company recorded interest expense related to notes payable of $35,612 and $674, respectively.

During the years ended December 31, 2015 and 2014, the Company recorded amortization of debt discount of $310,200 and $0, respectively.

Note 7 – Advances Payable

During the year ended December 31, 2015, the Company received an aggregate of $450,000 from investors in connection with a future offering of convertible notes that had not closed as of December 31, 2015. Upon closing of the offering, the Company will evaluate and record the impact of the conversion feature. See Note 12 – Subsequent Events – Notes Payable for additional details.

F-16

CELL SOURCE, INC. & SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 8 – Related Parties

On October 3, 2011, the Company entered into a definitive research and license agreement for Veto Cell technology and also an exclusive option agreement to negotiate an additional license for organ regeneration technology with Yeda Research and Development Company Limited (“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 Weizmann Institute of Science for an invention comprising methods of bone marrow transplantation and cell therapy utilizing Veto-Cells. The evaluation period with respect to the option to license the organ regeneration technology originally expired on October 3, 2012 and had been previously extended to December 31, 2015. On December 23, 2015, the Company and Yeda executed an amendment to the exclusive option agreement to negotiate a license for organ regeneration technology which extends the evaluation period through March 31, 2016. See Note 12 – Subsequent Events for additional details.

Under the terms of the amended research and license agreement, Yeda granted the Company an exclusive worldwide license for the licensed information and the patents for the development, manufacture and sale of the products derived therefrom. In consideration for the grant of the license, the Company has paid or will pay Yeda: (1) $210,000 on October 3, 2011; (2) an annual research budget commitment for 7 years in the amount of $800,000 for the period until October 3, 2018, 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 $900,000 for the period until October 3, 2018. Such a new research and license agreement must be in accordance with the exclusive option agreement; (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 expiration of the research period (which period has not expired and will be extended); and (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. To date, the Company has met all of the milestones and the next milestone in the agreement is October 3, 2016. 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 years ended December 31, 2015 and 2014, the Company recorded a charge to operations of approximately $830,000 and $1,012,000, respectively, related to its research and license agreement with Yeda. As of December 31, 2015 and 2014, approximately $208,000 and $285,000 has been accrued and is payable to Yeda, respectively.

During the year ended December 31, 2014, the Company issued two six-month notes payable in the aggregate principal amount of $100,000 to the Company’s CEO. The notes bear interest at a rate of 6% per annum payable at maturity. On June 1, 2015, the Company entered into a letter agreement with the Company’s CEO to extend the maturity dates of the two promissory notes from May 2015 to October 30, 2015. On November 12, 2015, the Company entered into a letter agreement with the Company’s CEO to extend the maturity dates of the two promissory notes to March 31, 2016. See Note 12 – Subsequent Events – Notes Payable for additional details.

On July 20, 2015, the Company issued a one-year note payable in the principal amount of $100,000 to a member of the Board of Directors of the Company. The note is non-interest bearing. The note must be prepaid in whole from the proceeds of any closing after the issuance date, of any offering or offerings pursuant to which the Company receives aggregate gross proceeds greater than or equal to $3,000,000. In consideration of the loan, a four-year warrant to purchase 100,000 shares of common stock at an exercise price of $0.75 per share, with an issuance date fair value of $34,900, was issued by the Company to the purchaser of the note payable and was recorded as a debt discount under the residual value method. In connection with the Company’s sequencing policy, the warrant was determined to be a derivative liability. See Note 4 – Fair Value for additional details. The warrant contains an exercise limitation such that at no time may the warrant be exercised if the shares of common stock to be issued upon such exercise would exceed, when aggregated with all other shares of common stock owned by the holder (or his permitted successors or assigns), 4.99% of the issued and outstanding shares of the common stock of the Company. In the event the principal amount of the note is not paid by the Company on or before July 20, 2016, the Company shall (i) pay to the lender a one-time cash penalty payment of five percent (5%) of the principal amount of the note due and unpaid on such date, and (ii) issue to the lender a warrant to purchase, at an exercise price of $0.75 per share, the number of shares the Company’s common stock equal to the product of (a) the principal amount of the note due and unpaid on July 20, 2015 and (b) ten percent (10%).

F-17

CELL SOURCE, INC. & SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 9 – Stockholders’ Deficiency

Fair Value of Common Stock

The Company performed valuations to estimate the fair value of its common stock during the years ended December 31, 2015 and 2014. To determine the value of its common stock, the Company considered the following three possible valuation methods (1) the income approach, (2) the market approach and the (3) cost approach to estimate its 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, the Company 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 the market approach to estimate the fair value of its common stock as the Company sold notes payable to third parties convertible into shares of common stock in 2015 (see Note 6 – Notes Payable – Convertible Notes) and sold shares of common stock to third parties in 2014 (See Note 9 – Stockholders’ Deficiency – Common Stock and Warrant Offerings).

Using an option pricing method and the relative fair values, the Company derived the implied equity value for the common stock as follows:

	Year Ended December 31, 2015							Year Ended December 31, 2014
	Common Stock		Fair		Allocation			Common Stock		Fair		Allocation
	Equivalents		Value		%			Equivalents		Value		%

Common stock		443,333	$	332,500		52	%		4,090,661	$	3,067,996		57	%
Warrants		443,333	$	311,480		48	%		4,090,661	$	2,320,054		43	%



	Relative fair value of the common stock				$	0.39		Relative fair value of the common stock				$	0.43

There is inherent uncertainty in the Company’s forecasts and projections, and if the Company had made different assumptions and estimates than those described previously, the determined fair value of its common stock for either period could have been materially different.

F-18

CELL SOURCE, INC. & SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 9 – Stockholders’ Deficiency - Continued

Common Stock and Warrant Offerings

During the year ended December 31, 2014, the Company entered into an investment agreement with a group of investors. Pursuant to the agreement, the investors contributed to the Company aggregate net proceeds of $3,012,846 (gross proceeds of $3,067,996 less issuance costs of $55,150) in exchange for 4,090,661 units. Each unit was sold for $0.75 per unit and consisted of one share of common stock and an immediately vested five-year warrant to purchase one 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. As a result, during the year ended December 31, 2014, the Company reclassified $1,499,000 for the fair value of the warrants to derivative liabilities which will be marked to market at each subsequent reporting period. Prior to the expiration date, the Company shall have the option to redeem all of the warrants then outstanding upon not less than thirty (30) days nor more than (60) days notice to the applicable holder, at a redemption price of $0.01 per share, subject to the conditions that: (i) there is an effective registration statement covering the resale of the underlying shares of common stock and (ii) the common stock has traded for twenty (20) consecutive days with a closing price of at least $2.50 per share with an average trading volume of 100,000 shares per day.

Compensatory Common Stock

On July 7, 2014, the Board of Directors resolved to issue 100,000 shares of common stock to a service provider in connection with the June 30, 2014 completion of the Share Exchange. The Company recognized the $43,000 value of the award as stock-based compensation expense during the year ended December 31, 2014, which was the service period. On July 29, 2014, the Company issued the 100,000 shares of common stock.

See Note 11 – Commitments and Contingencies – Consulting Agreement for details of the issuance of other common stock as compensation during the year ended December 31, 2015.

Stock Warrants

See Note 4 – Fair Value, Note 6 – Notes Payable and Note 11 – Commitments and Contingencies for additional details associated with warrants. See Note 1 – Business Organization and Nature of Operations – Share Exchange and Reorganization for details of the issuance of warrants to consultants.

During the year ended December 31, 2014, the Company issued 233,333 shares of common stock to a warrant holder who elected to exercise a warrant to purchase 400,000 shares of common stock on a "cashless" basis under the terms of the warrant. The warrant had an exercise price of $0.75 per share and the intrinsic value of the warrant exercised was $420,000.

A summary of the warrant activity during the years ended December 31, 2015 and 2014 is presented below:

						Weighted
				Weighted		Average
				Average		Remaining
	Number of			Exercise		Life		Intrinsic
	Warrants			Price		In Years		Value

Outstanding, December 31, 2013		2,812,498		$	0.21
Granted		6,090,661			0.75
Exercised		(400,000	)		0.75
Forfeited		-			-
Outstanding, December 31, 2014		8,503,159		$	0.57
Granted		4,615,000			0.75
Exercised		-			-
Forfeited		-			-
Outstanding, December 31, 2015		13,118,159		$	0.63		3.7	$	815,490

Exercisable, December 31, 2015		12,724,159		$	0.63		3.7	$	815,490

F-19

CELL SOURCE, INC. & SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 9 – Stockholders’ Deficiency - Continued

Stock Warrants – Continued

The following table presents information related to stock warrants at December 31, 2015:

Warrants Outstanding				Warrants Exercisable
				Weighted
		Outstanding		Average		Exercisable
Exercise		Number of		Remaining Life		Number of
Price		Warrants		In Years		Warrants

$	0.001		2,043,835		4.9		2,043,835
$	0.750		11,074,324		3.5		10,680,324
			13,118,159		3.7		12,724,159

Note 10 – Income Taxes

Cell Source, Inc. was formed in June 2012 under the name Ticket to See, Inc. Prior to the Share Exchange in June 2014, the Company did not have any material operations in the United States. In June 2014, the Company became the parent of Cell Source Limited, a wholly owned Israeli subsidiary, which files tax returns in Israel.

The Israeli and U.S. components of income before income taxes were as follows:

	For The Years Ended
	December 31,
	2015			2014

Israel	$	(1,986,936	)	$	(3,817,479	)
United States		(517,169	)		(240,000	)
Income before income taxes	$	(2,504,105	)	$	(4,057,479	)

The tax effects of temporary differences that give rise to deferred tax assets are presented below:

	December 31,
	2015			2014

Net operating loss carryforwards	$	2,094,000		$	1,414,000
Foreign deferred research and development costs		356,000			416,000
Stock-based compensation expense		26,000			-

Deferred tax assets		2,476,000			1,830,000
Valuation allowance		(2,476,000	)		(1,830,000	)

Deferred tax assets, net	$	-		$	-

F-20

CELL SOURCE, INC. & SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10 – Income Taxes – Continued

The income tax provision (benefit) for the years ended December 31, 2015 and 2014 consists of the following:

	For The Years Ended
	December 31,
	2015			2014
Current
Foreign	$	-		$	-
Federal		-			-
U.S. State and local		-			-

Deferred
Foreign		(358,000	)		(1,045,000	)
Federal		(226,000	)		(82,000	)
U.S. State and local		(62,000	)		(24,000	)
		(646,000	)		(1,151,000	)
Change in valuation allowance		646,000			1,151,000
Income tax provision (benefit)	$	-		$	-

The reconciliation of the expected tax expense (benefit) based on the U.S. federal statutory rates for 2015 and 2014, respectively, with the actual expense is as follows:

`	For The Years Ended
	December 31,
	2015			2014

Expected federal statutory rate		(34.0	%)		(34.0	%)
State and local taxes, net of federal tax benefit		(2.5	%)		(0.6	%)
Statutory rate differential - domestic vs. foreign		7.7	%		7.0	%
Permanent difference - stock-based compensation		0.6	%		5.9	%
Change in tax rates and other		2.4	%		0.0	%
True-up to filed tax returns		0.0	%		(6.7	%)
Change in valuation allowance		25.8	%		28.4	%

Income tax provision (benefit)		0.0	%		0.0	%

At December 31, 2015 and 2014, the Company had approximately $6,808,000 and $4,936,000, respectively, of foreign net operating losses (“NOLs”) that may be available to offset future taxable income indefinitely. At December 31, 2015 and 2014, the Company had approximately $905,000 and $240,000, respectively, of federal and state (U.S.) NOLs that may be available to offset future taxable income until 2035. In accordance with Section 382 of the U.S. Internal Revenue Code, the usage of the Company’s net operating loss carry forwards may be subject to annual limitations following greater than 50% ownership changes. There was no greater than 50% ownership change during 2015.

The Company assesses the likelihood that deferred tax assets will be realized. 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, 2015 and 2014. For the years ended December 31, 2015 and December 31, 2014, the increase in the valuation allowance was approximately $646,000 and $1,151,000, respectively.

The Company’s tax returns are subject to examination by tax authorities beginning with the year ended December 31, 2012 (Israel) and December 31, 2012 (U.S.).

F-21

CELL SOURCE, INC. & SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 11 – Commitments and Contingencies

Litigation

Certain conditions may exist as of the date the consolidated 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 consolidated 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, 2015 and 2014, the Company has not accrued any amounts for contingencies.

Scientific Advisory Board

On June 4, 2015, the Company entered into an agreement, effective May 21, 2015, with a consultant to serve as Chairman of the Company’s Scientific Advisory Board (the “SAB”). Unless terminated earlier at the option of the Company, the agreement terminates on May 21, 2017. Pursuant to the agreement, the Company agreed to compensation consisting of (i) quarterly payments to the consultant of $3,000; (ii) issuance of a five-year warrant to purchase 120,000 shares of the Company’s common stock at an exercise price of $0.75 that vests quarterly over two years; and (iii) payments of $1,000 per day for each symposium meeting attended, with travel expenses to be reimbursed by the Company.

During the year ended December 31, 2015, the Company entered into agreements with four consultants to serve as members of the Company’s SAB. Unless terminated earlier at the option of the Company, the agreements terminate between June and July 2017. Pursuant to the agreement, the Company agreed to compensation consisting of (i) quarterly payments to each consultant of $2,500; (ii) issuance of five-year warrants to purchase an aggregate of 400,000 shares (100,000 shares per consultant) of the Company’s common stock at an exercise price of $0.75 per share that vest quarterly over two years; and (iii) payments of $1,000 per day to each consultant for each symposium meeting attended, with travel expenses to be reimbursed by the Company.

The warrants to purchase an aggregate of 520,000 shares of common stock issued to members of the Company’s SAB during the year ending December 31, 2015 had an aggregate issuance date fair value of $190,900 ($0.37 per share) which will be recognized ratably over the vesting periods. During the year ended December 31, 2015, the Company recognized $50,684 of stock-based compensation expense related to the warrants. As of December 31, 2015, there was $140,216 of unrecognized stock-based compensation expense that will be recognized over approximately 1.5 years.

Consulting Agreement

On August 17, 2015, the Company entered into a one-year agreement with a consultant to provide accounting services for the Company (“Services Agreement”). In exchange for services provided by the consultant during the term, the Company agreed to (i) pay a fee of $5,000 per month (compensation commences on September 1, 2015 but payment is deferred until the Company raises at least $1,000,000), (ii) issue 100,000 shares of immediately vested common stock, valued at $40,000 which was recorded as stock-based compensation expense and (iii) issue an immediately vested five-year warrant to purchase 100,000 shares of common stock at an exercise price of $0.75 per share, valued at $36,700 which was recorded as stock-based compensation expense. In connection with the Company’s sequencing policy, the warrant was determined to be a derivative liability. See Note 4 – Fair Value for additional details. Effective November 24, 2015, the parties agreed to terminate the Services Agreement under the following terms: (i) the Company agreed to pay the consultant a total of $12,500 pursuant to the Services Agreement and (ii) the consultant will retain the warrants and common stock previously issued.

F-22

CELL SOURCE, INC. & SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 12 – Subsequent Events

Convertible Note Offering

Subsequent to December 31, 2015, the Company closed on an aggregate of $390,000 in principal amount of 10% Convertible Notes to investors. The 10% Convertible Notes bear interest at a rate of 10% per annum and are payable eighteen (18) months from the date of issuance. See Note 6 – Notes Payable – Convertible Notes for additional details.

Notes Payable

In January 2016, the Company issued a convertible note payable in the principal amount of $250,000 to an investor who advanced the funds to the Company in January 2015 (see Note 7 – Advances Payable). The note matures on July 27, 2016 and bears interest at a rate of 10% per annum, beginning from the date the funds were advanced. The note shall be automatically converted into shares of the Company’s common stock upon the earlier of (i) the closing of an offering of equity securities pursuant to which the Company receives an aggregate of at least $5,000,000 in gross proceeds (“Qualified Financing”); or (ii) the maturity date. In the event the note is converted upon the occurrence of a Qualified Financing (the “QF Conversion Shares”), the conversion price of the note shall be the lesser of (i) seventy percent (70%) of the price per share or per unit (assuming the unit includes one share of common stock or the price per unit divided by the number of shares of common stock underlying such unit) at which the Company sells its securities in a Qualified Financing; or (ii) the quotient obtained by dividing $35,000,000 by the aggregate number of outstanding shares of the common stock, measured on a fully-diluted basis, excluding certain shares, on the date immediately preceding the Qualified Financing. The QF Conversion Shares shall be subject to a prohibition from any sale, pledge or transfer for a period of six (6) months from the date of the closing on which the Company generates aggregate gross proceeds under the Qualified Financing of at least $5,000,000. In addition, upon conversion of the note following the occurrence of a Qualified Financing, the holder shall automatically receive five-year warrants to purchase that number of shares of common stock into which the note is convertible and such warrants shall have an exercise price equal to the lesser of (i) seventy percent (70%) of the price per share or per unit (assuming the unit includes one share of common stock or the price per unit divided by the number of shares of common stock underlying such unit) at which the Company sells its securities in a Qualified Financing; or (ii) $0.75. In the event the note is automatically converted upon the maturity date, the conversion price of the note shall be equal to the quotient obtained by dividing $20,000,000 by the aggregate number of outstanding shares of the common stock, measured on a fully-diluted basis, excluding certain shares, on the date immediately preceding the maturity date (the “Maturity Conversion Price”). In addition, in the event of an automatic conversion of the note upon the maturity date, the holder shall automatically receive five-year warrants to purchase that number of common stock into which the note is convertible and such warrants shall have an exercise price equal to the Maturity Conversion Price.

On March 8, 2016, the Company issued six-month notes payable in the aggregate principal amount of $600,000 which bear interest at a rate of 10% per annum. In connection with the note issuances, the Company issued immediately vested warrants to purchase an aggregate of 300,000 shares of common stock at an exercise price of $0.75 per share. The warrants contain a provision that provides the Company with an option, prior to the expiration date, to redeem all of the warrants then outstanding upon not less than thirty (30) days nor more than (60) days notice to the applicable holder, at a redemption price of $0.01 per share, subject to the conditions that: (i) there is an effective registration statement covering the resale of the underlying shares of common stock and (ii) the common stock has traded for twenty (20) consecutive days with a closing price of at least $2.50 per share with an average trading volume of 100,000 shares per day. The warrants expire on March 25, 2019.

On April 4, 2016, the Company extended the maturity date of a note payable to the Company’s CEO in the principal amount of $50,000, originally dated November 26, 2014, from March 31, 2016 to September 30, 2016.

On April 4, 2016, the Company extended the maturity date of a note payable in the principal amount of $250,000, originally dated May 15, 2015, from December 31, 2015 to June 30, 2016.

On April 6, 2016, the Company extended the maturity date of notes payable in the aggregate principal amount of $500,000, originally dated March 26, 2015, from March 26, 2016 to June 26, 2016.

Subsequent to December 31, 2015, the Company repaid a note payable in the principal amount of $50,000 to the Company’s CEO.

F-23

CELL SOURCE, INC. & SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 12 – Subsequent Events – Continued

Short Term Advances

Subsequent to December 31, 2015, the Company received a non-interest bearing short term advance in the amount of $134,000 from a director of the Company. In the event that the Company does not repay the advance by February 10, 2016, the Company will be required to issue the director a four-year warrant to purchase 134,000 shares of common stock at an exercise price of $0.75 per share. As of the date the financial statements were issued, the Company has repaid the director $67,000.

Exclusive Option Agreement

On March 29, 2016, the Company exercised its option pursuant to an October 3, 2011 exclusive option agreement with Yeda such that, effective immediately, it now exclusively licenses organ regeneration technology from Yeda.

F-24

Nevada		32-0379665
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o	Smaller reporting company þ

		Page
	PART I

Item 1.	Business.	1
Item 1A.	Risk Factors.	33
Item 1B.	Unresolved Staff Comments.	43
Item 2.	Properties.	44
Item 3.	Legal Proceedings.	44
Item 4.	Mine Safety Disclosures.	44

	PART II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.	45
Item 6.	Selected Financial Data.	46
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	46
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk.	54
Item 8.	Financial Statements and Supplementary Data.	54
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.	54
Item 9A.	Controls and Procedures.	54
Item 9B.	Other Information.	55

	PART III

Item 10.	Directors, Executive Officers, and Corporate Governance.	56
Item 11.	Executive Compensation.	58
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.	60
Item 13.	Certain Relationships and Related Transactions, and Director Independence.	60
Item 14.	Principal Accounting Fees and Services.	62

	PART IV

Item 15.	Exhibits, Financial Statement Schedules	63

Signatures		65

Initial Malignancy Indications (note estimates for North America and EU only)	Prevalence (Number patients)		Annual Bone Marrow Transplantations

Non-Hodgkin’s Lymphoma		808,000		11,000
Multiple Myeloma		188,000		16,500
Acute Myeloid Leukemia		119,000		8,500
Total		1,115,000		36,000

Name: VETO CELLS EFFECTIVE IN PREVENTING GRAFT REJECTION AND DEVOID OF GRAFT VERSUS HOST POTENTIAL

Country	Patent Number	Filed	Expires	Status	Assignee

USA (Basic)	6,544,506	05-Jan-2000	05-Jan-2020	Granted	Yeda Research and Development Co. Ltd.

USA (National Phase)	7,270,810	28-Dec-2000	1-Dec-2021	Granted	Yeda Research and Development Co. Ltd.

Europe	1244803	28-Dec-2000	28-Dec-2020	Granted	Yeda Research and Development Co. Ltd.

Israel	150440	28-Dec-2000	28-Dec-2020	Granted	Yeda Research and Development Co. Ltd.

Name: USE OF ANTI THIRD PARTY CENTRAL MEMORY T CELLS FOR ANTI-LEUKEMIA/LYMPHOMA TREATMENT

Country	Patent Number	Filed	Expires	Status	Assignee

USA	2013-0171108-A1	08-Sep-2011	08-Sep-2031	Pending	Yeda Research and Development Co. Ltd.

Japan	2013-527738	08-Sep-2011	08-Sep-2031	Pending	Yeda Research and Development Co. Ltd.

Canada	2,810,632	08-Sep-2011	08-Sep-2031	Pending	Yeda Research and Development Co. Ltd.

China	CN 103282047 A 9	08-Sep-2011	08-Sep-2031	Pending	Yeda Research and Development Co. Ltd.

Republic of Korea	2013-7008892	08-Sep-2011	08-Sep-2031	Pending	Yeda Research and Development Co. Ltd.

Israel	225102	08-Sep-2011	08-Sep-2031	Pending	Yeda Research and Development Co. Ltd.

Brazil	BR 11 2013 005756 4	08-Sep-2011	08-Sep-2031	Pending	Yeda Research and Development Co. Ltd.

Mexico	MX/a/2013/002668	08-Sep-2011	08-Sep-2031	Pending	Yeda Research and Development Co. Ltd.

Singapore	188473	08-Sep-2011	08-Sep-2031	Granted	Yeda Research and Development Co. Ltd.

Europe	26138013	08-Sep-2011	08-Sep-2031	Allowed	Yeda Research and Development Co. Ltd.

Hong Kong	14100513.2	08-Sep-2011	08-Sep-2031	Pending	Yeda Research and Development Co. Ltd.

Name: ANTI THIRD PARTY CENTRAL MEMORY T CELLS, METHODS OF PRODUCING SAME AND USE OF SAME IN TRANSPLANTATION AND DISEASE TREATMENT

Country	Patent Number	Filed	Expires	Status	Assignee

USA	2014-0212398-A1	06-Sep-2012	06-Sep-2032	Pending	Yeda Research and Development Co. Ltd.

Europe	2753351	06-Sep-2012	06-Sep-2032	Pending	Yeda Research and Development Co. Ltd.

Hong Kong	1200099A	06-Sep-2012	06-Sep-2032	Pending	Yeda Research and Development Co. Ltd.

Japan	2014-529143	06-Sep-2012	06-Sep-2032	Pending	Yeda Research and Development Co. Ltd.

Canada	2,848,121	06-Sep-2012	06-Sep-2032	Pending	Yeda Research and Development Co. Ltd.

China	CN 103930130 A	06-Sep-2012	06-Sep-2032	Pending	Yeda Research and Development Co. Ltd.

Australia	2012305931	06-Sep-2012	06-Sep-2032	Pending	Yeda Research and Development Co. Ltd.

Republic of Korea	10-2014-7009267	06-Sep-2012	06-Sep-2032	Pending	Yeda Research and Development Co. Ltd.

New Zealand	622749	06-Sep-2012	06-Sep-2032	Granted	Yeda Research and Development Co. Ltd.

South Africa	2014/01993	06-Sep-2012	06-Sep-2032	Pending	Yeda Research and Development Co. Ltd.

India	577/MUMNP/2014	06-Sep-2012	06-Sep-2032	Pending	Yeda Research and Development Co. Ltd.

Israel	231397	06-Sep-2012	06-Sep-2032	Pending	Yeda Research and Development Co. Ltd.

Russian Federation	2014110897	06-Sep-2012	06-Sep-2032	Pending	Yeda Research and Development Co. Ltd.

Brazil	BR 11 2014 005355 3	06-Sep-2012	06-Sep-2032	Pending	Yeda Research and Development Co. Ltd.

Mexico	MX/a/2014/002771	06-Sep-2012	06-Sep-2032	Pending	Yeda Research and Development Co. Ltd.

Singapore	11201400513P	06-Sep-2012	06-Sep-2032	Pending	Yeda Research and Development Co. Ltd.

Name: GENETICALLY MODIFIED ANTI-THIRD PARTY CENTRAL MEMORY T CELLS AND USE OF SAME IN IMMUNOTHERAPY

Country	Patent Number	Filed	Expires	Status	Assignee

USA	62/193,207	16-Jul-2015	16-Jul-2035	Pending	Yeda Research and Development Co. Ltd.

USE OF ANTI THIRD PARTY CENTRAL MEMORY T CELLS

Country	Patent Number	Filed	Expires	Status	Assignee

USA	62/193,229	16-Jul-2015	16-Jul-2035	Pending	Yeda Research and Development Co. Ltd.

Name: UNIVERSAL DONOR-DERIVED TOLEROGENIC CELLS FOR INDUCING NON-SYNGENEIC TRANSPLANTATION TOLERANCE

Country	Patent Number	Filed	Expires	Status	Assignee

US	8,916,147	21-Aug-2006	21-Aug-2026	Granted	Yeda Research and Development Co. Ltd.

US (Divisional)	2015-0104471-A1	21-Aug-2006	21-Aug-2026	Pending	Yeda Research and Development Co. Ltd.

Europe	1928479	21-Aug-2006	21-Aug-2026	Allowed	Yeda Research and Development Co. Ltd.

Europe (Divisional)	2514315	21-Aug-2006	21-Aug-2026	Pending	Yeda Research and Development Co. Ltd.

Israel	189688	21-Aug-2006	21-Aug-2026	Granted	Yeda Research and Development Co. Ltd.

Name: A COMBINATION THERAPY FOR A STABLE AND LONG TERM ENGRAFTMENT

Country	Patent Number	Filed	Expires	Status	Assignee

Singapore	11201403459X	20-Dec-2012	20-Dec-2032	Pending	Yeda Research and Development Co. Ltd.

Mexico	MX/a/2014/007647	20-Dec-2012	20-Dec-2032	Pending	Yeda Research and Development Co. Ltd.

Brazil	BR 11 2014 015960 2	20-Dec-2012	20-Dec-2032	Pending	Yeda Research and Development Co. Ltd.

Russian Federation	2014128479	20-Dec-2012	20-Dec-2032	Pending	Yeda Research and Development Co. Ltd.

Israel	233303	20-Dec-2012	20-Dec-2032	Pending	Yeda Research and Development Co. Ltd.

India	1468/MUMNP/2014	20-Dec-2012	20-Dec-2032	Pending	Yeda Research and Development Co. Ltd.

South Africa	2014/05071	20-Dec-2012	20-Dec-2032	Granted	Yeda Research and Development Co. Ltd.

New Zealand	627272	20-Dec-2012	20-Dec-2032	Pending	Yeda Research and Development Co. Ltd.

Republic of Korea	10-2014-7020449	20-Dec-2012	20-Dec-2032	Pending	Yeda Research and Development Co. Ltd.

Australia	2012355990	20-Dec-2012	20-Dec-2032	Pending	Yeda Research and Development Co. Ltd.

China	CN 104470542 A	20-Dec-2012	20-Dec-2032	Pending	Yeda Research and Development Co. Ltd.

Canada	2,859,953	20-Dec-2012	20-Dec-2032	Pending	Yeda Research and Development Co. Ltd.

Japan	2014-548337	20-Dec-2012	20-Dec-2032	Pending	Yeda Research and Development Co. Ltd.

Europe	2793914	20-Dec-2012	20-Dec-2032	Pending	Yeda Research and Development Co. Ltd.

USA	2014-0363437-A1	20-Dec-2012	20-Dec-2032	Pending	Yeda Research and Development Co. Ltd.

Hong Kong	15103467.1	20-Dec-2012	20-Dec-2032	Pending	Yeda Research and Development Co. Ltd.

Name: METHODS OF TREATING DISEASE BY TRANSPLANTATION OF DEVELOPING ALLOGENEIC OR XENOGENEIC ORGANS OR TISSUES

Country	Patent Number	Filed	Expires	Status	Assignee

Mexico	319957	04-Mar-2004	04-Mar-2024	Granted	Yeda Research and Development Co. Ltd.

Mexico (Divisional)	MX/a/2014/001950	04-Mar-2004	04-Mar-2024	Pending	Yeda Research and Development Co. Ltd.

Europe	2216033	04-Mar-2004	04-Mar-2024	Granted	Yeda Research and Development Co. Ltd.

Name: THERAPEUTIC TRANSPLANTATION USING DEVELOPING, HUMAN OR PORCINE, RENAL OR HEPATIC, GRAFTS

Country	Patent Number	Filed	Expires	Status	Assignee

USA	7,780,993	19-Jan-2005	23-Apr-2023	Granted	Yeda Research and Development Co. Ltd.

USA (Divisional)	8,951,572	19-Jan-2005	19-Jan-2025	Granted	Yeda Research and Development Co. Ltd.

USA (Divisional)	2015-0190546-A1	19-Jan-2005	19-Jan-2025	Pending	Yeda Research and Development Co. Ltd.

Name: DISEASE TREATMENT VIA DEVELOPING NON-SYNGENEIC GRAFT TRANSPLANTATION

Country	Patent Number	Filed	Expires	Status	Assignee

USA	8,974,779	02-Oct-2005	02-Oct-2023	Granted	Yeda Research and Development Co. Ltd.

USA (Divisional)	2015-0174294-A1	02-Oct-2005	02-Oct-2023	Pending	Yeda Research and Development Co. Ltd.

Europe	1809734	02-Oct-2005	02-Oct-2025	Granted	Yeda Research and Development Co. Ltd.

Europe (Divisional)	2453008	02-Oct-2005	02-Oct-2025	Granted	Yeda Research and Development Co. Ltd.

Hong Kong (Divisional)	HK1170534	02-Oct-2005	02-Oct-2025	Granted	Yeda Research and Development Co. Ltd.

Israel	182363	02-Oct-2005	02-Oct-2025	Granted	Yeda Research and Development Co. Ltd.

Name: MAMMALIAN FETAL PULMONARY CELLS AND THERAPEUTIC USE OF SAME

Country	Patent Number	Filed	Expires	Status	Assignee

USA	HK1170534	06-Dec-2012	06-Dec-2032	Pending	Yeda Research and Development Co. Ltd.

Europe	2788009	06-Dec-2012	06-Dec-2032	Allowed	Yeda Research and Development Co. Ltd.

Japan	2014-545442	06-Dec-2012	06-Dec-2032	Pending	Yeda Research and Development Co. Ltd.

Canada	2,857,930	06-Dec-2012	06-Dec-2032	Pending	Yeda Research and Development Co. Ltd.

China	CN 104105493 A	06-Dec-2012	06-Dec-2032	Pending	Yeda Research and Development Co. Ltd.

Australia	2012348574	06-Dec-2012	06-Dec-2032	Pending	Yeda Research and Development Co. Ltd.

Republic of Korea	10-2014-7018702	06-Dec-2012	06-Dec-2032	Pending	Yeda Research and Development Co. Ltd.

New Zealand	627071	06-Dec-2012	06-Dec-2032	Allowed	Yeda Research and Development Co. Ltd.

South Africa	02014/04958	06-Dec-2012	06-Dec-2032	Granted	Yeda Research and Development Co. Ltd.

India	1366/MUMNP/2014	06-Dec-2012	06-Dec-2032	Pending	Yeda Research and Development Co. Ltd.

Israel	233022	06-Dec-2012	06-Dec-2032	Pending	Yeda Research and Development Co. Ltd.

Russian Federation	2014127338	06-Dec-2012	06-Dec-2032	Pending	Yeda Research and Development Co. Ltd.

Brazil	BR 11 2014 014033 2	06-Dec-2012	06-Dec-2032	Pending	Yeda Research and Development Co. Ltd.

Mexico	MX/a/2014/006756	06-Dec-2012	06-Dec-2032	Pending	Yeda Research and Development Co. Ltd.

Singapore	11201402902V	06-Dec-2012	06-Dec-2032	Pending	Yeda Research and Development Co. Ltd.

Philippines	1- 2014-501309	06-Dec-2012	06-Dec-2032	Pending	Yeda Research and Development Co. Ltd.

Hong Kong	15103466.2	06-Dec-2012	06-Dec-2032	Pending	Yeda Research and Development Co. Ltd.

Offering	Objective	Major Activities		Estimated start date
Anti-rejection Veto Cell	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 2017 Interim analysis within 18 months thereafter

Veto – CAR-T Cell Therapy	Validate the possibility of combining Veto Cell treatment with CAR-T cell treatment for both blood cell cancer and solid tumor cancer treatment	4. Engender partnership with Car-T cell provider 5. Validate combined treatment model in preclinical trials 6. Develop joint production and treatment protocol	● ●	Discussions with prospective partners underway If preclinical studies are successful , human trials would be the next step

Strategy Element		Introductory period (years 1 -3 post FDA approval)		Years 4+

Market Segments	● ●	Lymphoma and Leukemia Solid tumors e.g. breast cancer.	●	Same as before plus broader set of solid tumor targets, diabetes, emphysema and other major non-malignant organ disease; sickle cell anemia

Product Rollout	● ●	Veto Cell therapy for B-cell malignancies Veto+CAR-T Veto Cell therapy for both blood cell and solid tumor cancers	● ●	Veto Cell tolerizing treatment for BMT and organ transplantation Veto Cell therapy for cancer and non-malignant disorders; organsource for major organ regeneration

Customer/ Geographic Focus	● ● ●	North America Western Europe China	●	North America, Western & Eastern Europe, Australia/New Zealand, Russia, Brazil, selected Asian markets

Channels/Go to Market	● ●	Direct relationships with leading transplantation centers International production and distribution through partners	●	Partnership with global market leaders

Pricing	●	Consistent with other cell therapy offerings currently associated with transplantations and immuno-oncology	●	Potentially higher volume, lower cost for “off the shelf” offerings

	High		Low

First Quarter ended March 31, 2015	$	1.35	$	0.20
Second Quarter ended June 30, 2015	$	1.60	$	0.73
Third Quarter ended September 30, 2015	$	1.39	$	1.00
Fourth Quarter ended December 31, 2015	$	1.60	$	1.05

	High			Low

First Quarter ended March 31, 2014	$	0.10	***	$	0.10	***
Second Quarter ended June 30, 2014	$	3.50		$	0.10
Third Quarter ended September 30, 2014	$	2.00		$	0.75
Fourth Quarter ended December 31, 2014	$	0.95		$	0.32

Name	Age	Title(s)

Dennis Brown	66	Director (Chairman)
Itamar Shimrat	56	Chief Executive Officer, Chief Financial Officer and Director
Yoram Drucker	50	Director
David Zolty	66	Director
Ben Friedman	57	Director

Name and						Stock		Option			All Other
Principal Position	Year	Salary		Bonus		Awards		Awards			Compensation		Total

Itamar Shimrat	2015	$	181,198	$	-	$	-	$	212,000	(1)	$	-	$	393,198
Chief Executive Officer	2014	$	168,909	$	-	$	-	$	-		$	-	$	168,909

									Change in
									Present Value
									and
		Fees							Nonqualified
		Earned or							Deferred
		Paid In		Stock		Option			Compensation		All Other
	Year	Salary		Awards		Awards			Earnings		Compensation		Total

Dennis Brown	2015	$	750	$	-	$	-		$	-	$	-	$	750
Yoram Drucker	2015	$	750	$	-	$	155,500	(1)	$	-	$	-	$	156,250
David Zolty	2015	$	750	$	-	$	-		$	-	$	-	$	750
Ben Friedman	2015	$	-	$	-	$	-		$	-	$	-	$	-

Name and Address of Beneficial Owner (11)	Amount and Nature of Beneficial Ownership (1)			Percentage of Class (2)

Directors and Officers:
Yoram Drucker, Director		1,125,004	(3)		4.60	%
Itamar Shimrat, Chief Executive Officer, Chief Financial Officer and Director		1,226,584	(4)		4.99	%
David Zolty, Director		1,108,318	(5)		4.63	%
Ben Friedman, Director (6)		4,383,344	(7)		18.32	%
Dennis Brown, Director (Executive Chairman)		200,000	(8)		*

All directors and executive officers as a group (5 persons)		8,043,250			31.86	%

Yeda Research & Development Co. Ltd. P.O. Box 95 Rehovot, 76100, Israel		1,195,861	(9)		4.99	%
Yair Reisner 4 Mazal Keshet Street Old Jaffa, 68037 Israel		1,195,861	(10)		4.99	%

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
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 Consultant Warrant(8)
10.5 (1)		Form of Researcher Company Warrant
10.6 (1)		Form of Company Warrant
10.7 (1)		Form of Lockup Agreement (included in Exhibit 2.1)
10.8 (1)		Research and License Agreement by and between Yeda Research and Development Company Limited and Cell Source Limited, dated October 3, 2011
10.9 (1)		Amendment to Research and License Agreement
10.10 (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)
10.11 (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
10.12 (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
10.13 (1)		Consulting Agreement by and between Cell Source Limited and Professor Yair Reisner
10.14 (6)		Form of Amendment No. 1 to Registration Rights Agreement
10.15 (7)		Bridge Funding Agreement
10.16 (5)		Third Amendment dated June 22, 2014 to Evaluation and Exclusive Option Agreement by and between Yeda Research and Development Company Limited and Cell Source Limited
10.17 (8)		Form of Consulting Agreement pursuant to which the Company issued warrants to purchase an aggregate of 2,000,000 shares of the Company’s common stock
10.18 (9)		Form of Promissory Note issued to the Company’s Chief Executive Officer
10.19 (10)		Form of March 2015 Promissory Note
10.20 (10)		Form of March 2015 Warrant
10.21 (11)		Form of Note Amendment Letter Agreement
10.22 (11)		Form of May 2015 Note
10.23 (11)		Form of May 2015 Warrant
10.24 (12)		Form of Advisory/Consulting Agreement
10.25 (13)		Zolty Promissory Note

10.26 (13)		Zolty Warrant
10.27 (13)		Form of July 2015 Convertible Promissory Note
10.28 (13)		Form of July 2015 Warrant
10.29		Form of Bridge Note Subscription Agreement
10.30		Form of Convertible Note
10.31		Form of March 2016 Note
10.32		Form of March 2016 Warrant
16.1 (1)		Letter from Paritz & Company, P.A.
21 (14)		Subsidiaries
31.1		Certification of principal executive and principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification of principal executive and principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS		XBRL Instance Document
101.SCH		XBRL 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 Statement 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.
(5)		Incorporated by reference to the Company’s Form 10-Q filed with the Securities and Exchange Commission on August 19, 2014.
(6)		Incorporated by reference to the Company’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on August 8, 2014.
(7)		Incorporated by reference to the Company’s Registration Statement Form S-1/A filed with the Securities and Exchange Commission on September 23, 2014.
(8)		Incorporated by reference to the Company’s Form 8-K filed with the Securities and Exchange Commission on June 30, 2014.
(9)		Incorporated by reference to the Company’s Form 8-K filed with the Securities and Exchange Commission on December 2, 2014.
(10)		Incorporated by reference to the Company’s Form 8-K filed with the Securities and Exchange Commission on April 1, 2015.
(11)		Incorporated by reference to the Company’s Form 8-K filed with the Securities and Exchange Commission on June 3, 2015.
(12)		Incorporated by reference to the Company’s Form 8-K filed with the Securities and Exchange Commission on June 10, 2015.
(13)		Incorporated by reference to the Company’s Form 8-K filed with the Securities and Exchange Commission on July 28, 2015.
(14)		Incorporated by reference to the Company’s Form 10-K filed with the Securities and Exchange Commission on March 13, 2015.

	CELL SOURCE, INC.


Dated: April 14, 2016	By:	/s/ Itamar Shimrat
		Name:	Itamar Shimrat
		Title:	Chief Executive Officer and
			Chief Financial Officer
			(Principal Executive, Financial
			and Accounting Officer)

SIGNATURE		TITLE	DATE


By:	/s/ Dennis Brown	Chairman	April 14, 2016
	Dennis Brown


By:	/s/ Itamar Shimrat	Chief Executive Officer, Chief Financial Officer and Director	April 14, 2016
	Itamar Shimrat	(Principal Executive, Financial and Accounting Officer)


By:	/s/ Ben Friedman	Director	April 14, 2016
	Ben Friedman


By:	/s/ Yoram Drucker	Director	April 14, 2016
	Yoram Drucker


By:	/s/ David Zolty	Director	April 14, 2016
	David Zolty

	Bank:	Signature Bank
		950 Third Ave, 9th FL
		New York, NY 10022
		Attn: PCG# 311

	ABA Number:	026013576
	SWIFT Code:	SIGNUS33
	Account #:
	Account Name:	Cell Source, Inc., Signature Bank as Escrow Agent (INVESTOR’S NAME)

	Dated as of: _____________ __, 2016


	INVESTOR


	By:

	Print Name:

	Title:

	Address:



	Telephone number:

	Email address:

[_]	(a) an individual who, either alone or with a spouse, beneficially owns financial assets having an aggregate realizable value that, before taxes but net of any related liabilities, exceeds $1,000,000 [NOTE: If the Investor is relying on this category of “accredited investor” to purchase the Securities, the Investor must also complete in duplicate Annex I-B hereto] ;
[_]	(b) an individual who beneficially owns financial assets having an aggregate realizable value that, before taxes but net of any related liabilities, exceeds $5,000,000;
[_]	(c) an individual whose net income before taxes exceeded $200,000 in each of the 2 most recent calendar years or whose net income before taxes combined with that of a spouse exceeded $300,000 in each of the 2 most recent calendar years and who, in either case, reasonably expects to exceed that net income level in the current calendar year [NOTE: If the Investor is relying on this category of “accredited investor” to purchase the Securities, the Investor must also complete in duplicate Annex I-B hereto] ;
[_]	(d) an individual who, either alone or with a spouse, has net assets of at least $5,000,000 [NOTE: If the Investor is relying on this category of “accredited investor” to purchase the Securities, the Investor must also complete in duplicate Annex I-B hereto] ;
[_]	(e) a person, other than an individual or investment fund, that has net assets of at least $5,000,000 as shown on its most recently prepared financial statements; or
[_]	(f) a person in respect of which all of the owners of interests, direct, indirect or beneficial, except the voting securities required by law to be owned by directors, are persons that are accredited investors.

	(a) cash,
	(b) securities, or
	(c) a contract of insurance, a deposit or an evidence of a deposit that is not a security for the purposes of securities legislation;

	(a) liabilities incurred or assumed for the purpose of financing the acquisition or ownership of financial assets, or
	(b) liabilities that are secured by financial assets;

	(a) is married to another individual and is not living separate and apart, from the other individual, or
	(b) is living with another individual in a marriage-like relationship, including a marriage-like relationship between individuals of the same gender.